While beginning your investment journey in stock markets, you must remember that you cannot purchase or sell stocks and securities directly. You can trade in stock markets only with the help of an intermediary, or a stockbroker/broking firm. These intermediaries are authorised to purchase and sell stocks and securities on your behalf via stock exchanges. For the services rendered, the intermediaries charge a fee or commission. They are registered with the Securities Exchange Board of India (SEBI). Various regulations, including the SEBI Act, 1992, Securities Contract Regulations, 1956 etc. govern these intermediaries.
What Is a Stockbroker?
A stockbroker can either be a registered stockbroking company or an individual. They buy and sell securities on their client’s behalf and charge brokerage fees. They act as a vital link between investors and stock exchange by facilitating transactions. On the basis of providing services, stockbrokers are of various types:
Full-Service Stockbrokers: These stockbrokers provide comprehensive services to clients, including providing advisory assistance. They can help an investor gain insight into investment opportunities. Typically, their brokerage fees are based on the total amount of executed trades. These are generally well-established market players, with a range of network offices/branches across the country.
Discount Brokers: They charge comparatively lower fees as compared to full-service brokers. Their services don’t include advisory assistance or market research to help clients zero in on a suitable investment opportunity. Usually, they charge a flat fee for undertaking stock market transactions.
Brokers Charging Flat Brokerage: These types of stockbrokers have gained popularity because of the increasing use of digital technology in trading. They are a mix of both full-service and discount stockbrokers, charging a flat rate brokerage fee.
What Is Sub-Broker?
A sub-broker is an agent of a broker, working with the client, on their behalf. They act as a link between the stockbroker and the client. A stockbroker entrusts the sub-broker with multiple responsibilities, like sourcing clients, providing services and client management. Sub-brokers receive a portion of the fees and charges collected by the stockbroker. A stockbroker can have a wide network of operations across the country via different sub-brokers, who identify and acquire new clients for the stockbroker. Now that you know what is sub-broker, let’s compare their differences:
Key Differences Between A Broker and A Sub-broker
Broker Vs Sub-Broker Function: A stockbroker functions independently, while a sub-broker acts as an intermediary between the main stockbroker and its clients. A sub-broker is primarily entrusted with the responsibility of expanding the business network of the original stockbroker. Stockbrokers usually also act as Depository Participants (DPs) of the National Stock Exchange’s (NSEs)-promoted National Securities Depositories Ltd (NSDL) or the Bombay Stock Exchange’s (BSEs)-promoted Central Depositories Securities Ltd (CDSL). Here, you must remember that both the depositories maintain stocks and securities in an electronic format. A sub-broker, on the other, hand cannot be a DP.
Broker Vs Sub-Broker Registration: A stockbroker has to be registered with the SEBI. While initially, sub-brokers were also to be registered with the SEBI, the market regulator, since August 2018, has discontinued sub-broker as a category for registration. In its circular dated August 3, 2018, all existing sub-brokers had to compulsorily migrate to the category of ‘Authorised Person.’ According to the SEBI, an Authorised Person can be an individual, firms or other entities which are appointed by a stockbroker. These can provide access to a trading platform of a stock exchange by acting as an agent of the stockbroker.
Broker Vs Sub-Broker Revenue Sharing: Sub-brokers have a wide range of responsibilities, thereby entitling them to a higher share of revenue generated via the clients. Though the main stockbroker gets a smaller share of the revenue, it has access to overall large revenue generated by scores of sub-brokers.
Also read, How Much Sub-broker Earns in India?
Broker Vs Sub-Broker Brokerage: Stockbrokers charge direct brokerage fees from clients, while sub-brokers are not allowed to directly charge brokerage fees from clients. Sub-brokers receive the specified portion of the revenue from the stockbrokers.
Broker Vs Sub-Broker Importance: Stockbrokers play a vital role in the stock markets by ensuring sufficient availability of liquidity. They have a key place in the capital markets ecosystem. Sub-brokers, on the other hand, are vital for stockbrokers for expansion of their businesses across regions. A stockbroker provides opportunities to new people to enter the financial market as agents by providing access to the stockbroking firm’s cutting-edge trading tools and other services. Sub-brokers have to typically provide a deposit fee with the stockbroker.
Thus, while investing in stock markets, it is essential to know what is a sub-broker and a stockbroker. Both play a distinct role in the functioning of stock markets. They share some common features as well as differences. While beginning your investment in stock markets, always rely on a trusted and reliable financial partner. Look for features such as an all-in-one trading platform to invest in different stock market options, brokerage cashbacks and zero Demat AMC for up to a year.