Understanding the Difference Between Sub-Brokers and Authorised Person

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The functions of authorised people Vs sub-brokers sometimes overlap in the world of financial markets, but they are also very different. Although both act as brokers linking investors to the world of trading and investments, their obligations, roles, and regulatory status differentiate them from one another. In this article, we will examine the subtle difference between a sub-broker and an authorised person.

According to SEBI, Who Is a Sub-Broker?

The Securities and Exchange Board of India (SEBI) does not define the word ‘sub-broker’. In contrast, a sub-broker in the Indian securities market is usually considered to be a person or organisation that stands between clients and registered stockbrokers or trading members of stock exchanges.

  • Although they are linked with stockbrokers or other trading members, sub-brokers are not directly registered with SEBI but do operate under its regulatory framework.
  • They offer investment advice, help clients trade securities, and implement orders on their behalf. Sub-brokers are essential to extending stockbrokers’ networks and encouraging regular investors to participate in the stock market.

According to SEBI, Who Is an Authorised Person?

The Securities and Exchange Board of India (SEBI) utilises the term ‘authorised person’ to refer to people or organisations that SEBI-registered stockbrokers or trading members have permitted to act on their behalf when interacting with clients and providing services related to securities trading and investments.

Authorised persons, usually referred to as APs, are chosen by trading members or stockbrokers who are registered with SEBI and are permitted to do a number of tasks, such as:

  • Order placement: APs can place orders with the stockbroker or trading member on behalf of clients.
  • Approaching clients: They may reach out to clients and introduce them to the stockbroker or trading member to acquire new clients.
  • Giving customers financial advice: APs can make suggestions and give clients investment suggestions.
  • Trading: They can trade in the commodities and securities markets.
  • Keeping records: APs are in charge of keeping accurate records of client transactions and ensuring compliance with legal obligations.

It’s crucial to remember that authorised persons must follow SEBI rules and regulations and act within the boundaries established by the stockbroker or trading member who designates them.

Difference Between Sub-Broker and Authorised Person

In order to successfully navigate the world of financial markets, it is essential that you understand the difference between a sub-broker and an authorised person. Authorised Persons (APs) and sub-brokers are both significant components in the Indian securities market, although they have different functions, regulatory ranking, and service offerings.

Status as a Regulatory Body

  • Sub-broker: The Securities and Exchange Board of India (SEBI) does not directly register sub-brokers. Instead, they operate under the authority of trading members or stockbrokers who have registered with SEBI.
  • Authorised person: APs are people or organisations that SEBI-registered stockbrokers or trading members have permitted to act on their behalf. With the registered entities, they have a direct agreement.

Services Provided

  • Sub-broker: Sub-brokers are primarily concerned with gaining new clients, offering investing guidance, and carrying out orders on their client’s behalf.
  • Authorised person: APs are capable of a wider range of tasks, such as placing orders, acquiring clients, giving investment advice, carrying out trades, and keeping records. They frequently play a bigger part in providing customer service. Business partners are essential to the creation and growth of a sub-broker and Authorised person’s financial services operations.

Line of Communication

  • Sub-broker: Sub-brokers typically have a direct line of communication with their clients and serve as mediators for clients and the registered stockbroker or trading member.
  • Authorised persons: APs additionally interact directly with clients, but they do so within the parameters of the trading member or licenced stockbroker’s regulatory structure and power.

Registration

  • Sub-broker: Sub-brokers function under the registration of the stockbroker or trading member they are affiliated with rather than having a direct registration with SEBI.
  • Authorised persons: Depending on the agreement, APs may work under the registration of the stockbroker or trading member or have their own SEBI registration.

While both sub-brokers and authorised persons are crucial for promoting securities trading and client services, authorised persons often have a broader field of operations and may be directly registered with SEBI, whilst sub-brokers work under the regulatory wing of SEBI-registered organisations. The decision between the two will depend on the brokerage setup’s legal compliance and specific demands.

Conclusion

Understanding the distinction between sub-brokers and authorised persons is vital in navigating the financial landscape. While both act as intermediaries in securities trading, sub-brokers typically operate under a registered stockbroker, executing trades on behalf of clients. On the other hand, authorised persons, often referred to as independent financial consultants, have a direct relationship with the exchange and can execute trades independently. Recognising these differences is crucial for investors and individuals aspiring to participate in the financial markets, guiding them in choosing the right intermediary based on their specific needs and preferences.

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