What Role Broker and Sub Broker play in the Capital Market?

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Brokers and sub brokers are important players in the capital market. Their roles are related but also somewhat different. They both play the role of an intermediary between the buyers and sellers of security; therefore, they are crucial for the smooth functioning of the capital market.

This blog will explain the roles of a broker and sub broker, and also how their roles are different. So, read on…

Additional Read: What is sub broker

Role of a broker in the capital market

Brokers are registered with the stock exchange. Their job is to provide a trading platform where buyers and sellers of securities can execute their transactions. Brokers perform a number of important functions; however, their most important role is to suggest the best deals to their clients.

If you have opened a trading account, chances are high that you have already got a call from your broker’s team advising you to buy or sell a certain security. This is the most important role of a broker. After all, if the securities are not bought or sold in the capital market, there would not be any need for a broker.

The second most important role of a broker is to facilitate margin trading. Under this facility, brokers lend money to traders so that they can buy stocks. This allows traders to buy more stocks than the money in their account allows them to do so.

In this day and age of online trading, a broker’s responsibility is to provide an online trading platform that can help traders buy and sell securities without any glitches and that also provides them with real-time data and news.

These are the main roles or responsibilities of a broker in the capital market. Now, let us turn our attention to sub brokers.

Additional Read: Roles And Functions Of Sub brokers

Role of a sub broker in the capital market

A sub broker works for a broker and helps him expand his business. Typically, sub brokers do not have sufficient financial resources to become full-fledged brokers themselves. Therefore, they work for a broker through arrangements like a franchise agreement.

Sub brokers tend to have their own network, which includes clients to whom they can sell financial products. They use the brand name and trading platform of a broker to sell the broker’s products to their clients.

This results in a win-win for both brokers and sub brokers. Due to such an arrangement, brokers do not have to reach out to those clients and yet see their business grow, and sub brokers do not have to invest their own financial resources to have online trading platforms.

Brokers and sub brokers typically have a revenue-sharing arrangement. Sub brokers do not have to get themselves registered with the stock exchange. But it is not as if a sub broker does not have a role in the stock exchange. A sub broker has a role in the stock exchange because he is an intermediary between a broker and clients. Meanwhile, sub brokers are required to register with the Securities and Exchange Board of India (SEBI)

To become a sub broker for a broker, sub brokers have to meet certain criteria. For example, their minimum qualification should be 10+2 or HSC. Their minimum age should be 21 years. If they register with a certain broker to become a sub broker, they should not register with any other broker because that will result in a conflict of interest.

They should neither be a trading member of a stock exchange nor should they be a defaulter in a stock exchange. These requirements are universal, which means regardless of which broker they deal with, sub brokers have to comply with these requirements. However, in addition to these requirements, a broker may have certain other criteria as well.

For example, if you want to be a sub broker of Bajaj Broking, then you should know how the Indian and international financial markets function. This is because Bajaj Broking allows you to trade in both Indian and foreign securities. Bajaj Broking also requires its sub brokers to know about the socio-economic climate of their country because that helps them understand the mindset of investors. 

So, before you sign up with a broker to become his sub broker, you should thoroughly go through the criteria so that there is no confusion later.

Additional Read: 7 Benefits of Being a Sub-Broker

Conclusion

For efficient functioning of the capital market, it is necessary that brokers and sub brokers work well with each other. Before a sub broker signs up with a broker, he should check whether their vision aligns or not. A sub broker should also check the revenue-sharing arrangement with a broker. He should work only with those brokers who suitably compensate their sub brokers. For example, Bajaj Broking allows its sub brokers to maximise their earnings through an appropriate revenue-sharing model, lucrative rewards, and high commissions. 

Meanwhile, a broker should also check whether a sub broker has the talent and willingness to take his business forward. If a sub broker ends up giving a wrong advice to a client, both he and his broker will lose their reputation. In short, both a broker and a sub broker have to ensure that their mindsets align for the successful execution of business in the long run. 

Additional Read: Is sub brokership without deposit possible

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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