It is not possible for investors and traders to enter the stock market directly. Thus, investing in stocks and other securities requires you to have a stockbroking firm who is registered with the market regulator “the Securities Exchange Board of India (SEBI)”. These intermediaries are authorized to facilitate buying and selling securities in stock exchanges. These intermediaries are governed by different regulations such as the SEBI Act, 1992, Securities Contract Regulations, 1956.
What is a Stockbroker?
Meaning of stock broker: A stockbroker is a stockbroking firm or any individual registered with SEBI (Securities and Exchange Board of India). They provide customers with the facility of buying and selling securities in the stock market. They charge a brokerage fee for every transaction from clients. They mediate between investors & traders and the stock exchanges in India. They provide a place to connect investors & traders with the stock exchanges.
Now the meaning of stock broker has been cleared to you, let’s understand its different types.
Types of Stockbrokers in India
Stock broking firms are categorized into three types based on different types of services they provide.
Full-service stockbrokers are those stockbroking firms that offer customers with a comprehensive range of services that includes advisory assistance. With these kinds of full-service stockbrokers, it is possible to gain meaningful insight about the stock market. Their brokerage fees depend upon how many numbers of trades executed. Typically, they have established themselves as the leading market players in the industry with numerous offices/branches nationwide.
Discount brokers are those stockbroking firms that provide the facility of buying and selling in the securities market. They charge lower fees in comparison to full-service brokers. Their services exclude investment advice and guidance as provided by a full-service broker. They charge a flat fee in helping clients to carry out stock trades. They cover a large section of the fintech industry.
Brokers Charging Flat Brokerage
These kinds of stockbrokers are a combination of both full-service and discount stockbrokers. They charge flat rate brokerage fees for the types of services they provide. These stockbrokers have risen into popularity due to the availability of digital technology in stock trading.
What Is a Sub Broker?
A sub broker is currently known as an authorized person, working as an agent of a stockbroking firm. They act as a mediator between the stockbroking firm and their customers who are looking for investing in different investment avenues. The main purpose of a sub broker is to bring customers under the stockbroking firm they work with.
A sub broker is not any stock exchange’s Trading Member, but will provide services to customers on their behalf. While, a stockbroker provides multiple responsibilities. Some of them are offering services, pitching products, and managing customers along with sourcing customers. sub brokers earn in percentage for every transaction they carry out.
Many sub brokers for a particular stockbroker help to build a wide network of operations nationwide with identifying and acquiring new clients for them.
Now you must understand who is a stock broker, who is a sub broker, now let’s have differentiation.
- One of the significant differences between sub broker and stock broker is that a sub broker can’t be a trading member of any stock exchange, but a stockbroker can be. It doesn’t mean they will not have any proof of identification for the job they do. SEBI will grant them a certification of registration to carry out business.
- A sub broker earns commission, while a stock broker earns a brokerage fee for every transaction they carry out. Only those are registered with stock exchanges as trading members can charge brokerage fees. A stock broker charges a brokerage fee from every transaction, from which a sub broker gets a percentage of commission.
A stockbroker works as an independent entity, while a sub broker works as a mediator between the main stockbroker and their customers. A sub broker is responsible for the business expansion of the main stockbroker. Stockbrokers are depository participants (DPs) of India’s two Indian central securities depositories: National Securities Depositories Ltd (NSDL) majorly supported by National Stock Exchange of India (NSE) and Central Depositories Securities Ltd (CDSL) majorly supported by the Bombay Stock Exchange of India (BSE). Both depositories in India provide the facility of maintaining stocks and other securities electronically. Thus, a sub broker can’t be a DP in India.
- To provide a stock investing facility in India, a stockbroker must complete its registration process with SEBI. At the beginning, sub brokers used to register themselves with SEBI. From August 2018 onwards, sub broker has been prohibited for a category for registration. According to the circular dated 3 August 2018, it is mandatory for all the existing sub brokers to move to the category of ‘Authorized Person’.
An Authorized Person is anyone who is appointed by a stockbroker as per the SEBI. They can access a trading platform of a stock exchange as the stockbroker’s agent.
- Sub brokers get numerous responsibilities and for that, they earn a higher share of revenue based on no.of transactions. Here, the main stockbroker will receive a share of the revenue which is smaller than the revenue generated by scores of sub brokers.
- Stockbrokers ensure sufficient availability of liquidity in the markets. Their role is vital in the capital markets ecosystem. While, sub brokers help stockbrokers expand business across regions.