Learn the concept of a sub-broker and understand how you can start your own sub-broker and the advantages of doing so.
Brokers act as a bridge between investors and exchanges. They are registered with stock exchanges and trade stocks on behalf of investors. Sub-brokers help main stock brokers in expanding their services to a broader client base. This blog explores sub-brokers roles and responsibilities and how to become a stockbroker in India.
What is a Sub-Broker?
A sub-broker is a franchise of a main stockbroker. Sub-broker acts as a branch and helps in bringing on more clients for a commission. Sub-brokers help the main brokers by building personal links with the clients and expanding their business reach.
A sub-broker has to be licensed by the Securities and Exchange Board of India. Sub-brokers open their offices generally in small towns where people do not have much knowledge about stock markets and might not be able to avail the facilities of online brokers.
An Authorized Person (AP) and a Sub-Broker both act as intermediaries between investors and stockbrokers. The main difference between Sub-broker vs. authorized person is that SEBI no longer issues sub-broker registrations. Instead, stock exchanges authorize APs to provide trading access to clients. While Sub-Brokers were directly regulated by SEBI, giving them independent recognition and credibility, APs operate under the supervision of stockbrokers and follow exchange regulations.
The sub-broker model allowed greater autonomy in building client relationships and managing operations, fostering entrepreneurial growth in the financial sector.
Sub-broker office with financial charts, stock market data on screens, and professionals discussing trading strategies.
Roles and Responsibilities of a Sub-Broker
Let us look at the main responsibilities and roles of a sub-broker:
- Client Services: Sub-brokers usually build personal relationships with their clients. If they have property advisory and licence, they can also give investment advice and help their client maintain their stock portfolio.
- Fees – As a result of their services, a sub-broker can earn a commission from the main stock broker depending on the number of clients they bring and the amount of brokerage they are able to generate.
- Regulatory Compliance – Sub-brokers are not directly registered with SEBI but operate under its regulatory framework through a registered stockbroker. They must comply with the same SEBI regulations and exchange rules as stockbrokers. This includes maintaining transparency in client dealings, keeping accurate records, and adhering to anti-money laundering guidelines. Following these rules helps sub-brokers avoid legal issues and maintain their market reputation.
- Market Reach – Sub-brokers usually start their operations in small towns where people are unfamiliar with the stock market and hesitate to deal with an online broker. The presence of a sub-broker helps in building trust and onboarding new clients.
How to Become a Sub-broker?
The Sub-Broker registration process can be simple. If an individual is looking forward to become a sub-broker, these steps can be followed:
- Educate Yourself: If you were looking forward to starting a sub-broking business, then you should know all about SEBI regulations, laws, broking charges, financial products, and taxes on trading gains. This knowledge helps in resolving client doubts, adds more transparency, and builds trust.
- Choose the Right Broker: You had to find the right stock broker to associate with. This decision depends on commission structure, availability of financial products, or any other factor. Some brokers might not allow trading in some financial products. You can also associate with multiple brokers at once.
- Registration: Proper documents had to be submitted along with the fees to the main stockbroker you want to associate with. Once approved, the main stockbroker will forward your application to the SEBI, and the documents will be properly scrutinized.
- Approval: Once the documents are verified and approved, the individual is recognized as a sub-broker.
After this process, the sub-broker started marketing and acquiring new clients, offering them personalized investment services and helping them open trading accounts with the stockbroker.
Benefits of Becoming a Sub-Broker
After understanding the Sub-Broker eligibility criteria, it is important to understand that becoming a sub-broker can have multiple advantages, such as:
- Income Potential: Sub-brokers earn a commission, which depends on the number of clients they add and the amount of trading volume they generate. A sub-broker can earn a good amount of money if they onboard big clients with high trading volumes.
- Flexibility: Running a sub-broking company is just like any other business. The business owner has the flexibility to make their own decisions regarding hiring people, client dealing decisions, etc.
- Market Opportunities: Sub-brokers are associated with well-established stock brokers. The main stockbrokers try to update themselves with the latest technology, and sub-brokers get the benefit of the same.
- Low-Cost Startup: A sub-broking company has low investment compared to starting other businesses like a shop or a small manufacturing unit. There are costs relating to buying the license and acquiring a small office and other assets like computers, furniture, etc.
- Training and Support: Brokerage firms usually offer training programs, marketing help, and continuous support to their sub-brokers. This helps you stay up-to-date with what is happening in the market and the latest regulatory changes.
Difference Between Stock Broker and Sub-Broker
The major difference between a stock broker and sub-broker are as follows:
| Criteria | Stock Broker | Sub-Broker |
| Definition | Directly associated with stock exchange | Sub-broker is a franchise of the main stock broker. |
| Role | Execute trading orders for their clients | Acts as a franchise for main stockbroker |
| Fees | Earn brokerage fees | Earn a commission on the amount of brokerage generated by them |
| Relationship | Act independently according to exchange and SEBI norms | Act as per the guideline and under the supervision of the main broker |
Conclusion
Starting a sub-broking business is similar to starting any other business. It takes a lot of hard work to build relationships with clients. It can be rewarding since a sub-broker earns a commission based on the brokerage they help generate. A sub-broker has to go through a registration process and get approval from the SEBI.
