Stock Broking License: An Overview

Narendra Kumar

05 Oct, 2019

Stock Brokers are governed by the following regulations:

• Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992.
• SEBI Act, 1992,
• Securities Contracts (Regulation) Act, 1956,
• Bye-laws of Stock Exchange of which he must be a member, in the first place.

Who are Stock Brokers?

They are either individuals or entities who are given specific licenses to deal in securities & trading on behalf of the client for his transaction settlement. He works as an agent. He charges a commission for the entailed service from the buyers & sellers in question. 

An investor should regard the stockbroker^[1] as one who provides valuable services/duties and information to assist in making the right investment decisions. They are adequately qualified to provide solutions to a varied number of questions that an investor might come across or need answers to and assist in participating in the current market scenario.

E.g.: HDFC, Reliance Money, Angel Broking, Relegate, etc.

Application?

An application for a license by a stockbroker for grant of a certificate of registration to commence the business shall be made in ‘Form A’ through the stock exchange or stock exchanges, as the case may be, of which he is applied for to be the member so as to operate.

Every such registered broker displays registration details on their website and on all the official documents maintained. One can confirm the registration details on SEBI’s website by tracking the status or scrutinizing the list as well. The details of the registered brokers’ details are mentioned on the website as well.

However, the broker’s registration number shall begin with the letters “INB” and that of a sub-broker with the letters “INS” in alphanumeric capacity.

 Consideration of Application?

• Eligible to be admitted as a member of a stock exchange
• Relevant Past experience of trading in securities.
• Is a fit & proper person
• Have necessary infrastructure & office space as well as equipment for smooth discharge of functions.
• Is subject to proceedings under the relevant rules & regulations of SEBI & Bye-laws of a stock exchange.
• The stockbroker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II under the relevant regulations.

*Board on being satisfied shall grant the Certificate in ‘Form D’

What is Sub – Brokers?

A “Sub-Broker” is an individual or an entity who is although not a member of a Stock Exchange but who acts on behalf of a member-broker as an agent or otherwise for assisting the investors in buying, selling or dealing probably trading in securities via such member-brokers.

• The sub-brokers are requisite to apply for a certificate of registration, without which they can’t operate such trading operations. The apex authority has also directed that no broker shall deal with a person who is acting as a sub-broker unless he is registered with SEBI^[2] and it shall also be the responsibility of the member-broker to ensure that his clients are not acting in the capacity of a sub-broker unless they are registered with SEBI as the same.
• It is mandatory for member-brokers to enter into an agreement& execute the same with all the sub-brokers. The agreement lays down the rights and responsibilities of member-brokers as well as of the sub-brokers.
• However, no such fresh certificate of registration is required in the case where a registered sub-broker is aligned with a stockbroker who is eligible to trade on the SME platform.

General Duties of a Sub-broker:

• Disbursal of the fees as specified in Schedule III;
• Abide by the Code of Conduct specified in Schedule II;
• Execution of an Agreement with the stock-broker for specifying the scope of his authority and responsibilities;
• Comply with the rules, regulations, and bye-laws of the stock exchange;
• Should not align with more than one stockbroker of one stock exchange;

Responsibilities of a Stock Broker?

• Issuance of Contract Notes
• Display of integrity & discipline (fairness) towards the clients
• Breach of Trust / Relationship by sharing confidential details with the clients.
• Execution of orders placed by clients in an effective manner.
• Commission & brokerage must be earned on specified levels & models established.
• Investment advisory & consultancy.

Fees Payable?

• When the annual turnover does not exceed 1 Crore during any financial year, then 5000 is to be paid as fees.
• When the annual turnover of the stock-broker exceeds rupees 1 Crore during any financial year, a sum of 5000 plus one-hundredth of one percent of the turnover in excess of rupees one Crore for each financial year in question.
• For registration certificate to be in force, an amount of 5000 needs to be deposited for the sustenance of the certificate upon 5 years completion.

*Here,“Annual Turnover” means the aggregate of the sale and purchase prices of securities received and receivable by the stockbroker on his own account as well as on account of his clients in respect of sale and purchase or dealing i.e. trading in securities during any specified financial year.

The fees specified above shall be paid on or before the 1st day of October each year payable by draft in favor of “SEBI (CUSTODIAN OF SECURITIES) REGULATIONS, 1996” at Bombay Head Office, or at the respective Regional Office having the specified jurisdiction.