Sub Broker

A sub-broker is an important bridge between the stock market and investors. It also acts as an agent between the buyer and the seller. So, a sub-broker also plays the same important role as the main broker.

As an investor, it is important for you to understand the sub-broker meaning and difference between the main broker and the sub-broker. 

The sub-broker program run by the registered stockbroker and each stockbroker has taken broking license. Because these broking licenses cost high, so it cannot be afforded by small business houses or those who want to start their own business with low capital. So, they choose to become a sub-broker of a broking house as they are not supposed to take a license.

On the other hand, a broking house gets an opportunity to expand its business through its business partner.

The stock or share means one has ownership of a particular company. General people trade in those shares which are listed on the stock exchange of India. And this is where a sub-broker comes into existence.

In this article, we will throw light on various important aspects like what is the meaning, it’s business model, registration, fee required to pay, Eligibility, regulations, benefits, functions etc.

Sub-broker Basics

Before going into details, it’s very important to understand the meaning of a sub-broker. So, let’s discuss it first.

A sub-broker is a person, who comes into the play after the appointment of a stockbroker and act as an agent on behalf of a trading member but not a trading member of a stock exchange.  

OR a sub-broker comes into existence after an agreement is signed between itself and the main broker.

OR it can be said that a sub-broking partner is an intermediate person between an investor and a stockbroker.

A sub-broker needs to be registered with Securities exchange board of India (SEBI) and the stockbroker will be responsible for all types of the commission involved.

SEBI has clearly announced that a sub-broking partner must be registered with a stock exchange, If not, then no trading member should deal with those people who act as a sub-broker. Those partners who are not registered with a stock exchange are also not allowed to deal with any client. And if it happens, a trading member will be responsible for that.

So, beware!

From the point of view of an investor, there is no difference between the broker and the sub-broker. As both work for the investor and helps them to take the right decision for investment. They also help in day to day buying and selling stocks.

So, the only difference is that a stockbroker is a trading member while a sub-broking partner is not. 

In today’s world, more and more people want to invest in the share market to get a good return. So, the importance, as well as the role of a stockbroker, is increasing day by day. The sub-broker act as an agent between the both hence, its role automatically increases.


Sub-broker Business model

After understanding the meaning of a sub-broker, it’s very important to understand the business model on which this partner entity works.

The business model of a sub-broking partner is not lengthy. Here, we can understand it step by step.

First of all, the partner is required to bring more and more clients for themselves. Those clients will do their trading and investing activity under the sub-broker. Though, in most of the cases, the stockbroker helps their partners in client acquisition through various ways like an advertisement in TV, newspaper, radio, mouth to mouth publicity etc.

Once a sub-broking partner makes its client base strong, they try to generate more and more revenue through their clients. They encourage their clients to do more trades and investment with them. For this, they provide time to time offers to the clients, low brokerage charge etc. So that the clients can be attracted towards the sub-broker.

The more the revenue is generated by the partner, the more share they will get by the stockbroker. As at the time of signing the agreement, a percentage is fixed between both parties for revenue sharing. In most of the cases, a sub-broker gets a higher percentage of revenue generated by them.

Most of the stockbrokers demand higher security deposit, check the prior experience of the sub-broker, revenue target given by them etc before fixing the revenue share with the sub-broking partner. However, one can also bargain with the main broker for the higher revenue sharing ratio before signing an agreement.


Sub-broker Registration

As it is well known that those who are acting as a sub-broker must have a certificate of registration from the securities exchange board of India. Without getting this certificate, no one is permitted to deal in stocks.

It will be the responsibility of a trading member to ensure that the partner has obtained the certificate of registration, without this, a sub-broking partner cannot acquire clients to handle for their own business.

Here are some of the points with regards to the registration of a sub-brokership.

  • Trading member will submit the registration application form of a sub-broker with the SEBI. They are also supposed to ensure that the application is received by the SEBI within the 7 working days of application submission.
  • As a sub-broker, you are required to deposit ₹2,000 processing fee plus applicable goods and service tax (GST) with the application of registration. Read this detailed review on Sub broker under GST for more information.
  • In the case of the incomplete registration application, the amount will be refunded to the trading member.
  • SEBI will send a physical copy of registration certificate to your stockbroker who will ultimately send it to you in case of acceptance of your application.
  • After getting the registration number through the certificate, a sub-broker can start their own business under the name of a stockbroker.

Documents required to be deposited with the registration application form are:

  • Address proof like the electric bill, telephone bill, ration card, valid driving license, valid passport and bank statement of last one month of a nationalized bank.
  • Experience certificate.

Sub-broker Fees

To start a sub-broker business, you are required to pay an initial amount to the stockbroker as a fee of the sub-brokership business.

Such a partner requires to deposit following fees to the main broker.

  • At first, an initial deposit is required to pay to the main broker. The amount varies broker to broker. The average amount required to be deposited to the stockbroker is between ₹50,000 – ₹3,00,000. This range is in line with the industry. It depends on the broker.
  • One-time registration fee is also required to deposit to the stock exchange. It varies somewhere between ₹15,000 – ₹20,000.

Sub-broker Eligibility

To become a sub-broker of a broker, you are required to full-fill the following eligibility criteria.

  • An individual must be a resident of India/Indian citizen.
  • He/she must be completed 18 years of age.
  • Should have managerial skills and knowledge of the financial market.
  • Should have basic knowledge of computers.
  • Must be passed 12th standard from a government recognized organization.
  • His/her reputation in the market is important. He should not be involved in any fraud and should have good character.
  • A Partnership firm should be registered under the Partnership Act 1932. While a company should be registered under the Indian companies act 1956 and Limited liability partnership should be registered under the limited liability act 2008.
  • Should have the minimum infrastructure for the business set-up like required office space, desktop, internet, required staff to full fill the work on behalf of the trading member.

If anyone who wants to become a sub-broker should full-fill the above points. Furthermore, you’d need to take a sub-broker exam as well to associate as a sub-broker with any prominent stockbroker.


Conversion of Sub-broker to Authorized person

As we know that the securities exchange board (SEBI) has stopped registration of new sub-brokers from 3rd August 2018. It means now no new person will be able to get the license of a Sub-broker business. All pending registration forms for sub-brokership will also be cancelled.

So?

Don’t worry, now, you can register yourself only as an Authorized person.

Wait, don’t get confused. Here is the detail in this regard:

SEBI has given instruction to all existing sub-brokers to migrate to AP role from 31ST March 2019.

If you are thinking that there will be a big difference in both sub-broking partner and ‘Authorized person’, then you are wrong. Actually, there is no difference in the Operative role of the two only the term sub-broker will be replaced by the term ‘Authorized person’ (AP).

SEBI has taken this step to stop the people who want to move the big brands only to start a partnership business. Also, the margin is falling and compliance cost is rising rapidly.

But, if you are an existing sub-broking partner of a trading member or want to start a business, you can still apply for that but the term sub-broker will be replaced by the ‘Authorized person’. It means now you are an authorized person instead of a sub-broker.

A sub-broker was required to get registered with the SEBI and now as an Authorized person, one is required to take registration with the stock exchanges like Bombay stock exchange (BSE) or National stock exchange (NSE).

You must note the main two difference which you will have to face in order to become an Authorized person from a sub-broker.

  • Now you will be registered with the stock exchange like BSE and NSE as a trading partner instead of SEBI.
  • Another point of difference is that you will be required to be registered for different segments like Cash, derivatives etc.

Sub-broker Regulations

The securities and exchange board of India has made two amendments in the regulations of stock-broker and the sub-broker. One was in the year 1992 (Amendment-I) and another was in the year 2018 (Amendment-II).

The latest amendment will come in effect from 1st April 2019. As per this amendment, a sub-broking partner of commodities or stock can do business under one entity only. However, there was no such restriction earlier.  A partner could do business under different entities.

Also Read: Can a Sub broker trade for himself?


Sub-broker Functions

Following are the functions of sub brokers.

  • A sub-broker is supposed to acquire more and more clients so that the revenue can be generated on the higher side. It will increase the business of both the sub-broking partner and the main broker.
  • A sub-broking partner is also responsible for providing various types of research reports to the clients, useful tips so that the client can take the right trading and investment decisions. A sub-broker is also supposed to provide all kinds of the necessary information to the client.
  • As a sub-broker plays an important role in the expansion of the business of a broking company, they are supposed to make a strong relationship with the clients so that they can continue trading with the company and the sub-broking partner can generate more and more brokerage through the clients.

Sub-broker Benefits

Following are the benefits of such a business model if you decide to start a sub-broking partner with a stockbroker.

  • Chance of smooth and better growth in the business world. A sub-broker can easily run their business with the help of the main broker.
  • A sub-broking partner will get the chance to start the business of their own with low investment and fees. They can work under the reputed brand name.
  • Higher revenue sharing ratio. After getting all the tools/technology from the main broker you will get a good share of revenue generated by your clients.
  • A sub-broker also gets help by the main broker in the client acquisition. Strong client base refers to the strong business.
  • As you work under a stockbroker who keeps checking everything on time to time and also helps a sub-broking partner where they require, the chance of losing business is very low.

Clients of Sub-broker Benefits

Here is the benefit you will get as a client of a sub-broker.

  • A client can get many benefits in trading and investing through the sub-broker. As the sub-broking partner can access all research reports published by the main broker so clients can take the right decision related to investment and trading.
  • As a client, if you go through the sub-broker for trading and investing. It means you will be able to get all the latest technology used by the broker to enhance your trading decision.
  • In many cases, for the smooth running of the business of a sub-broking partner and achieving the target, a sub-broker reduces the brokerage charge for its clients.
  • Through a sub-broking partner, Your job can fairly be easier as the sub-broking partner will help you in your every decision related to the trading. A sub-broker gets newsletters, emails, reports etc. to remain updated with the financial market.

Sub-brokers – Keys to getting more business

Here is a quick look at some of the tricks in order to get better business as a stockbroking partner:

  • Make your own database for the people you already know like your family, friends, relatives etc. It will help you to acquire more clients for the business.
  • Continue cold calling from the list of your prospective clients.
  • Always try to do a meeting with a prospective client. Unless you do 3-4 meeting with the client they will rarely come to you for the business.
  • As a sub-broker, your revenue depends on the number of clients you have. So, always ensure that you have enough active clients.
  • Always be available for the clients in case they have any query.

A sub-brokership is one of the wisest steps if you take it. In our country India, most of the people have little or no knowledge of the financial market but, they can afford to take the risk in this market. In this situation, an agent is required who has enough knowledge of the financial market, who can provide profitable suggestions to the investors.

A sub-broker is that agent who educates people about the stock market. They make understand the benefits of the stock market investment. A sub-broking partner should always try to upgrade their knowledge in order to win the clients.

A sub-broking partner starts their own business with a little initial investment. They get everything from the stockbroker which is used for their clients. A sub-broking partner enjoys full freedom to take the decision of their own business. So, it can be said that a sub-broker is a step towards becoming an entrepreneur.

In case you are looking to become a sub-broker yourself, let us assist you in taking things forward:

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More on Sub-brokership

If you wish to learn more about sub-brokership, here are a few references for you: