In the context of financial markets in India, the terms Sub-Broker and Authorized Person are often used interchangeably, but they do have distinct meanings depending on the specific regulatory and market framework. Here's a detailed comparison between the two:

1. Regulatory Definitions

• Sub-Broker:

  • A Sub-Broker is an individual or entity that works as an intermediary between the investor and the stockbroker. They help investors place orders and execute trades on stock exchanges like NSE or BSE.
  • The sub-broker operates under the registration of a main stockbroker (who is a member of the stock exchange).
  • They are registered and regulated by SEBI (Securities and Exchange Board of India) and must follow SEBI's rules and guidelines.
  • The sub-broker is responsible for the client’s funds and securities to some extent, especially in cases where they are involved in the opening of accounts (demat/trading accounts) for clients.

• Authorized Person (AP):

  • An Authorized Person is a more specific term used to describe a person who is authorized by a stockbroker (or a brokerage firm) to act as their representative for carrying out activities like trading, providing investment advice, and dealing with clients.
  • Like a sub-broker, an Authorized Person helps clients execute transactions on stock exchanges, but the key difference is that an AP usually does not deal directly with the client’s funds or securities.
  • The Authorized Person typically operates under the registration of the main broker but does not have the same regulatory obligations or responsibilities as the sub-broker when it comes to the handling of client assets.

2. Regulatory Body

• Both sub-brokers and authorized persons are regulated by SEBI (Securities and Exchange Board of India), but they have different registration requirements and levels of responsibility:

  • A Sub-Broker must be specifically registered with SEBI under the sub-broker category and work under a registered stockbroker. They are also governed by rules around client asset management, transaction reporting, and more.
  • An Authorized Person is a person who is authorized by the stockbroker to conduct specific activities, such as trading, client management, etc., but without taking on the full regulatory responsibilities of a stockbroker or sub-broker.

3. Responsibilities

• Sub-Broker:

  • Client Relationship: A sub-broker typically has direct relationships with clients and is involved in opening trading and demat accounts for them.
  • Execution of Trades: Sub-brokers help clients in executing buy and sell orders on the exchange, and are responsible for reporting these transactions to the main broker.
  • Funds/Securities Management: Sub-brokers may handle clients’ funds and securities, either directly or indirectly, and help clients maintain trading accounts.
  • Regulatory Compliance: Sub-brokers are directly responsible for ensuring that they comply with SEBI regulations, KYC/AML norms, and reporting requirements.

• Authorized Person:

  • Limited Client Relationship: An AP helps in client acquisition and may assist clients with their orders, but does not have the same responsibility for managing funds or securities.
  • Trading Facilitation: They facilitate trading on behalf of the main stockbroker, assisting clients in executing trades, and may also provide limited advice on trading strategies or market movements.
  • No Direct Handling of Funds: Authorized Persons typically do not have direct access to clients’ funds or securities, as their role is more about trading facilitation, market access, and assisting clients with their transactions.

4. Commission and Earnings

• Sub-Broker:

  • Sub-brokers generally earn a higher commission than Authorized Persons, as they handle a broader range of services, including client acquisition, account opening, and management of client funds.
  • They may also be involved in the overall client lifecycle, from onboarding to execution, which adds to their earnings potential.

• Authorized Person:

  • Authorized Persons typically earn a lower commission compared to sub-brokers because their responsibilities are more focused on facilitating trades rather than managing client accounts and assets.
  • The commission structure for an AP is usually based on trade volume or a flat fee paid by the main stockbroker.

5. Registration Process and Documentation

• Sub-Broker:

  • A sub-broker needs to be registered with SEBI as a sub-broker and work under the registration of a stockbroker.
  • They need to comply with various regulatory requirements, such as KYC norms, AML compliance, and periodic audits.
  • Sub-brokers also need to sign a formal Sub-Broker Agreement with the stockbroker they are partnering with.

• Authorized Person:

  • An Authorized Person does not need separate registration with SEBI like a sub-broker. Instead, they are authorized by a registered stockbroker to act on their behalf.
  • The registration is more about the partnership between the stockbroker and the Authorized Person, and the documentation typically involves an agreement outlining the terms of the partnership, roles, and responsibilities.

6. Risk and Liability

• Sub-Broker:

  • A sub-broker generally bears more liability and risk because they often deal with the client’s funds and assets. They are responsible for ensuring that all trades are conducted in compliance with market regulations and that client funds are safe.
  • They may also be subject to audits by SEBI and the stock exchanges to ensure compliance with all relevant regulations.

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• Authorized Person:

  • An Authorized Person generally has less liability in terms of client funds. Since they do not handle or manage client assets, their primary responsibility is facilitating transactions and maintaining client relationships.
  • Their risk is usually limited to the quality of the services provided and ensuring the accuracy of trade execution.

7. Key Differences at a Glance​​​​​​​​​​​​​​

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Conclusion

While both Sub-Brokers and Authorized Persons act as intermediaries between investors and stockbrokers, their roles differ significantly in terms of responsibilities, regulatory requirements, compensation, and client interaction.

• A Sub-Broker has a more comprehensive role that includes managing client funds, trading, and ensuring compliance with SEBI’s regulations.
• An Authorized Person typically has a more limited role, primarily facilitating trade execution and client interactions without handling funds or assuming full regulatory responsibilities.

Understanding these differences is crucial when deciding which role to pursue, depending on the level of responsibility and involvement you're willing to take on in the financial markets.

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