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The Indian stock market has witnessed a surge in popularity, evident from the significant increase in retail individuals opening millions of Demat accounts in the first half of 2021. Playing a pivotal role in this trend, sub-brokers contribute to the growing number of clients in online trading, aiding in account openings and investment decisions. The expanding opportunities for sub-brokers present a lucrative prospect for aspiring entrepreneurs looking to enter the stock market. However, the process of becoming a sub-broker may appear challenging without a detailed guide. This article provides comprehensive insights on how to embark on the journey of becoming a sub-broker in the stock market. Read on for a clearer understanding of the process.
Table of Contents
Defining a Sub-Broker
The role of a sub-broker, also called an authorised person, in the investment market differs and may or may not be directly linked to investing. As there was no online platform, the role of a sub-broker was created when investments were largely carried out by physical means. However, it still happens because of its essential role in the broking industry. A sub-broker technically performs many of the activities performed by the broker but acts as the intermediary between the broker and the investor.
For example, if you want help making investments for an upcoming IPO, a sub-broker can assist you without interacting with the broker.
- A subsidiary broker’s task is to provide additional services for its clients.
- Sometimes, a large brokerage cannot deal with many clients and investments, so a sub-broker franchise helps them manage and run their business effectively.
- A sub-broker may issue the confirmation and contract notes of the broker. As soon as any trading occurs, it is made available to investors.
- Sub-brokers are officially recognised entities with authorisation from India’s securities regulator, SEBI.
- Sub-brokers receive certain commissions on every transaction their clients carry.
Becoming a Sub-Broker
Understanding the role and function of a sub-broker is essential for understanding how to become an authorised person. According to the National Stock Exchange, a sub-broker is a middleman between a trading member (stockbroking firm) and the client. A sub-broker allows transactions and communication between traders and investors, compared with stockbrokers that connect clients to the stock exchange on a direct basis.
Specific qualifications are necessary to obtain the status of a sub-broker.
- Interested individuals should possess in-depth knowledge of the financial industry, market developments, and relevant legislation. This knowledge can be gained by completing suitable educational courses or training programs.
- It is important to obtain the necessary authorisations and certificates. These qualifications ensure that regulatory guidance is followed and establish credibility with potential clients. The key aspect of being a good sub-broker is establishing an effective professional network and building client trust. As a result, brokers and clients can easily be mediated through effective communication and interpersonal skills.
Steps to Become a Sub-Broker
Follow the below-mentioned steps to how to become a sub-broker.
1. Pick the model that best fits your sub-broker franchise
Begin by identifying and evaluating the various sub-broker franchise models currently offered by stockbrokers. You must carefully review their business models and select the best fit for your needs and objectives.
2. Check the eligibility criteria
Review the eligibility criteria established by the stockbroking house after selecting a Sub-broker franchise model. In general, it is very easy to satisfy the criteria for individuals.
3. Prepare and submit the documents
Gather all the necessary documentation when confident that you have fulfilled the eligibility criteria. This includes:
- Sub-broker registration application form
- Signed agreement between a stock broking firm
- Sub-broker proof of address, such as phone bill, power bill, ration card, passport, etc.
- If applicable, proof of experience certificate and any additional supporting documents requested in this respect
- Along with submitting the required documentation, you must pay the stockbroking house a processing fee of ₹2,000 plus GST.
4. Application submission and payment
Once you have received your documents and processing fee, the stockbroker shall electronically send the ‘Exchange Your Request for a Sub-broker’ form, which will be processed on your behalf so they can make an advance payment.
5. Document scrutiny
To ensure no shortcomings are found, the exchange will extensively review the documents provided. The exchange shall send the application form and documents to the stockbroker for correction and subsequently resubmission when any issues or deficiencies are identified.
6. SEBI registration fees
When the exchange approves your application forms, you must provide the necessary registration fees for SEBI’s stockbroking house. The fees will then be transferred to an exchange by a stockbroker acting on your behalf. This step ensures that you are registered as a sub-broker and that the SEBI Regulations are complied with. Once SEBI receives the registration fees, it will issue you a sub-broker’s certificate and a unique registration number. This certificate officially recognises you as an intermediary and authorised to trade in the stock market.
Responsibilities of a Sub-Broker
- Client Servicing: Sub-brokers provide ongoing client support, offer trading calls, solve transaction-related problems, and ensure client satisfaction. They are dedicated to offering quality services and retaining clients by providing exceptional support.
- Stock Tips and Calls: Sub-brokers often offer their clients investment ideas, recommendations, and advice on trading opportunities to enhance client loyalty.
- Client Acquisition: Sub-brokers are responsible for finding and acquiring prospective clients interested in trading or investing. They talk about the benefits of their brokerage firm, understand clients’ goals, and ask them to set up an account.
- Client Activation: Sub-brokers have a key role in helping and supporting their clients as they begin to trade. They will host training workshops, help clients navigate platforms, and ensure they are ready to start trading.
- Research and Analysis: Sub-brokers conduct independent research and analysis to provide their clients with useful information on investment decisions.
- Account Opening Assistance: Sub-brokers advise and guide clients in setting up trading accounts, ensuring that accounts are opened smoothly.
- Compliance with the regulations: Sub-brokers comply with the rules and regulations laid down by stock exchanges and regulatory authorities regarding client data verification, assistance for obtaining documentation and ensuring compliance with Know Your Client requirements.
- Order Execution Support: Sub-brokers, acting as dealers or terminal operators if necessary, shall carry out a client’s orders accurately and efficiently.
Benefits of Being a Sub-Broker
Low Investment Amount
Low investment requirements are one of the main benefits of becoming a sub-broker. Like all financial undertakings, sub-brokers do not need substantial capital to set up. The franchisor is responsible for most of the costs. To start their journey as sub-brokers, they only need to invest a small amount. Regardless of the initial investment, sub-brokers can earn unlimited commissions based on their client’s transactions without restrictions.
Financial Knowledge
An important advantage of being a sub-broker or taking part in a sub-broker franchise is that it provides access to financial knowledge. Working with a broker provides the sub-brokers invaluable insight and information on the stock market. This knowledge enables them to understand market dynamics better and make informed decisions about their business.
Despite being prevented from acting as intermediaries, sub-brokers retain the right to conduct personal trading activities with any broker using funds that they have available. Self-sufficiency allows sub-brokers to serve their clients better and fuel their investment journey.
Added Services
As a sub-broker, there is also the possibility of providing customers with other services than investment advice and strategies. Some broking companies allow sub-brokers to provide their customers with additional services, such as mutual fund distribution and loan options. Sub-brokers can earn commissions on these auxiliary services by expanding their service offerings, enabling them to raise income and encourage the growth of their sub-broker franchise.
Conclusion
To become a sub-broker in India, this opportunity provides an excellent entry point into the fast-moving stock market. In this step-by-step guide, we’ve explored the procedure and requirements for how to become a sub-broker. Aspiring entrepreneurs can now embark on a journey towards establishing successful sub-brokerage businesses, from choosing the right franchise model to submitting all necessary documents and fees Know all details from Share India. Join Share India to gain more insight into the stock market.