Role of SEBI for sub-brokers

Sub-broker is required to seek registration with SEBI according to SEBI 1992. SEBI has the right to categorize sub-brokers into types. Click here to read more at India Infoline.

October 25, 2021 1:50 IST | India Infoline News Service
If you invest in the stock market, exchange and broker are common knowledge. But, what is a sub-broker?

Any individual who is not a Trading Member of a Stock Exchange but acts on behalf of a Trading Member as an agent or aids investors in dealing with securities is referred to as a 'Sub-Broker.'

Just as all banks have to follow RBI guidelines, all participants in the security markets follow SEBI’s rules. SEBI requires all Sub-Brokers to get a Certificate of Registration, without which they are unable to trade in securities. SEBI has advised that no Trading Member shall interact with a person operating as a Sub-Broker unless he is registered with SEBI. The Trading Member must ensure that his clients are not functioning as Sub-Brokers unless they are registered with SEBI for Sub-Broker.

If you want to invest in assets through a sub-broker, you simply have to sign a contract with them. Trading Members' and Sub-Brokers' rights and responsibilities are outlined in the agreement.

Rights of SEBI in sub-brokering stockbrokers, authorized persons, and clients
Following is a list of general rights and obligations that must be in place before any deal can take place.
  • As per the first recommendation, clients should only invest in financial instruments listed by the exchange and approved by the exchange.
  • The rules and bylaws of SEBI govern the conduct of sub-brokers, authorized persons, and clients.
  • Before investing with a sub-broker, it is the client's responsibility to confirm their credibility and capabilities.
  • Before the sub-broker undertakes and executes financial transactions on behalf of a client, he or she should also update himself on the client's financial capabilities.
  • Sub-brokers must inform clients of their nature of business, policies, limitations, and liabilities, as well as their capacity to act.
  • The authorized person must help stockbrokers in completing deals with clients
  • Clients must go through the 'Account Opening Process' and provide all documents requested along with familiarizing themselves with investment guidelines
  • Unless otherwise required by law, sub-brokers must maintain all client-related information.

Role of SEBI in the stock market

1. Protective Functions

SEBI performs these functions to protect the interests of investors and financial institutions. Protective functions include the detection of price rigging, the prevention of insider trading, promotion of fair trading practices, education of investors, and prohibition of unfair trade practices.

2. Regulatory Functions
In its regulatory functions, SEBI monitors the functioning of financial market intermediaries. Regulatory guidelines and a code of conduct are developed for financial intermediaries, and mergers, amalgamations, and takeovers of companies are regulated.

Stock exchanges are also audited and inspected by SEBI. It serves as a registrar for brokers, sub-brokers, merchant bankers, and many others. Capital market participants are subject to fees imposed by SEBI. Apart from controlling the intermediaries, they also regulate credit rating agencies.

3. Development Functions
Training intermediaries is one of the development functions of SEBI. In addition to promoting fair trading, SEBI works to reduce malpractices. By using IEPF funds, also educates and makes investors unaware of the rules of the stock market.

What are the SEBI guidelines for sub-brokers?

A Certificate of Registration from SEBI is required for all sub-brokers before they can deal in securities. To comply with SEBI regulations, Trade Members are required not to deal with persons acting as Sub-Brokers if they are not registered with SEBI, and Trading Members have to ensure that their clients are not acting in the capacity of Sub-Brokers unless they are registered with SEBI.

How does SEBI control brokers?
SEBI is a regulatory body, responsible for monitoring and regulating the Indian capital and securities markets. Sub-brokers need to comply with the guidelines and regulations set by SEBI to acquire or maintain their license for trading.

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