Distinguishing Brokers and Sub-Brokers

Embarking on your investment journey in the stock market necessitates the involvement of an intermediary or stockbroker to facilitate the buying or selling of stocks and securities. Through stock exchanges, these intermediaries execute trades on your behalf, charging fees or commissions for their services. Registered as members by the Securities Exchange Board of India (SEBI), they operate within the regulatory framework outlined by the SEBI Act of 1992 and other applicable laws. Understanding the roles of a stockbroker and a sub-broker is crucial for investors, and this article aims to elucidate the differences between the two for a better grasp of their respective responsibilities.

Defining a Broker

A stockbroker is a registered stockbroking company or an individual. They buy and sell the securities on their client’s behalf, charging brokerage fees. By facilitating transactions, they serve as a vital link between investors and the stock exchange. The various types of brokers are mentioned below.

Full-Service Stockbrokers

These broker firms offer a wide range of services for their clients, such as advisory assistance. They will help the investor gain an understanding of investment opportunities. They normally charge brokerage fees based on the overall volume of transactions carried out. These are well-known market players, having many network offices and branches throughout the country.

Brokers Charging a Flat Brokerage

Given the increasing use of digital technologies for trading, these types of stockbrokers are becoming increasingly popular. They’re a combination of full-service and discount stockbrokers, charging a flat brokerage fee.

Discount Brokers

Compared to full-service brokers, they charge a relatively low fee. In order to assist clients in deciding on an appropriate opportunity for investment, their services do not include advice or market research. In general, they charge a flat fee for transactions on the stock market.

Defining a Sub-Broker

A sub-broker, or an authorised person, is an agent of a broker who works on behalf of the client. They’re a connection between stockbrokers and clients.

• A stockbroker entrusts a sub-broker with many responsibilities, such as finding potential clients, providing services and managing their accounts.
• A percentage of the fees collected by stockbrokers are paid to sub-brokers.
• The difference arises from the fact that stockbrokers are able to operate a wide network of operations throughout the country through various sub-brokers, who can identify and win new clients for them.

Differences Between Broker and Sub-Broker

Function

A stockbroker works on their own, whereas a sub-broker serves as an interface between the principal stockbroker and its clients. The primary duty of a sub-broker is to broaden the original stockbroker’s network of clients. The majority of stockbrokers also serve as Depository Participants (DPs) of the National Securities Depositories Ltd. (NSDL) or the Central Depositories Securities Ltd. (CDSL) led by the Bombay Stock Exchange (BSE). You must keep in mind that both depositories retain stocks and assets in electronic form in this situation. However, a sub-broker is not permitted to be a DP.

Revenue Sharing

Sub-brokers are subject to a range of responsibilities that, consequently, enable them to receive a greater share of the revenue derived from their clients. Although the main stockbroker receives a smaller proportion of revenues, it also has access to the overall large revenue generated by dozens of sub-brokers.

Registration

The brokers are registered trading members of the BSE and NSE, whereas the sub-brokers require certification from SEBI for trading.

Brokerage

Stockbrokers are charging clients direct brokerage commissions, and sub-brokers do not have the right to charge a client’s broker commission directly. Sub-brokers receive the specified amount of revenue from stockbrokers.

Trading

A broker has a direct interest in the stock market. The brokerage firm is buying or selling stocks. A sub-broker only does so through the broker. The sub-broker transfers the client’s buying and selling orders to a broker, who then carries them out.

Research and Resource

There is a large amount of research and resources at the disposal of the broker. A broker is a firm that has existed for many years. Research and resources are shared between marginal brokerage companies and their sub-brokers. To help sub-brokers better serve their customers, they offer regular seminars and orientation programs.

Importance of a Broker and Sub-Broker

Brokers

• Brokers stand as key figures in the financial landscape, equipped with the necessary licenses from regulatory bodies like the Securities Exchange Board of India (SEBI).
• Their primary function revolves around directly facilitating the buying and selling of securities for their clients.
• Brokers provide clients with valuable market insights, expert guidance, and a platform for executing trades.
• Their role is instrumental in ensuring that investors make informed decisions in the dynamic stock market, contributing significantly to the overall efficiency and trust within the financial ecosystem.

Sub-Brokers

• Complementing the role of brokers, sub-brokers serve as essential extensions, broadening the reach of financial services to a more diverse client base.
•  These intermediaries operate under the umbrella of licensed brokers, offering personalised assistance and guidance to investors.
• With a deep understanding of market intricacies, sub-brokers enhance accessibility to financial services, making them more approachable to a wider range of individuals.
• Their contributions lie not only in expanding the market reach but also in facilitating efficient trade execution, further strengthening the investor-broker relationship.

Conclusion

The distinction between a broker and a sub-broker lies in their roles within the financial landscape. A broker, holding direct licenses from regulatory bodies like SEBI, plays a central role in facilitating securities transactions, and offering market insights and guidance to clients. On the other hand, a sub-broker operates as an extension of a broker, broadening the accessibility of financial services to a diverse clientele, and providing personalised assistance. Both contribute significantly to the efficiency and trust within the financial ecosystem, with brokers directly executing trades and sub-brokers extending these services to a wider audience.

Frequently Asked Questions (FAQs)