Brokers, Sub-brokers – Meaning, Role of Stock Brokers

In this Article, we are going to discuss about Brokers, Sub-brokers – Meaning, Role of Stock Brokers. Investing in Stock Market Notes

Meaning of Broker

An individual cannot buy or sell securities directly at stock exchange. He can do so only through a broker. So he has to select a broker through whom the purchase or sale is to be made. Brokers are registered commission agents under SEBI who act as an intermediary between buyers and sellers of securities in the primary and secondary markets. They are brokerage from both buyer and seller for their services. Brokers are of three types:

a) Full-service brokers: Full-service brokers are those who through their wide range of network, provides complete services to their clients including advisory assistance. Charges of full-service brokers are generally higher as compared to other brokers.

b) Discount brokers: Discount brokers are those who charge comparatively lower brokerage as compared to full-service brokers. They do not provide advisory assistance to their clients. They provide all services to their client mainly through mobile application. Zerodha, Angel Broking, Upstox are some of the most popular and renowned discount brokers in India.

c) Brokers charging flat brokerage: In present competitive environment, these brokers are gaining popularity. These brokers charge a flat commission on every transaction.

Meaning of Sub-broker

A sub-broker is an agent of a broker who provides services to clients on behalf of main brokers. They acts as a middlemen between the main broker and the clients. Due to large number of customers, it is not possible for a broker provide services across the country. They acts through a chain of sub-brokers to provide services to their clients across the country. A stockbroker entrusts the sub-broker with multiple responsibilities, like sourcing clients, providing services and client management.

Role and duties of stock brokers:

The duties of a broker can be divided into three categories:

A) General Duties:

1. Integrity: A stock broker maintains high standards of integrity in the conduct of all his business activities.

2. Exercise of due care and diligence: A stock broker shall act with due care and diligence in the conduct of his business.

3. Manipulation: A stock broker shall not indulge in manipulations of securities or spreading rumours in stock market.

4. Malpractices: A stock broker shall not create false market or do not indulge in any act which is detrimental to the interest of the investors.

5. Compliance with statutory requirements: A stock broker along with its sub-brokers shall abide by the all the provisions of the Act and the rules, regulations issued by the Government and SEBI.

B) Duties to the Investors:

1. Execution of orders: A stock-broker shall faithfully execute the orders of buying and selling of securities at the best available market price and not to refuse to deal with a small investors.

2. Issue of contract note: A stock-broker shall issue contract note of all the transactions made by client immediately or on the date of the transactions.

3. Not to Breach the trust: A stock-broker must not share the details of its client with third party.

4. Avoid doing Business with defaulting client: A stock-broker shall not deal or transact business with a client who already defaulted in carrying out his commitments with another stock-broker.

5. Investment Advice: A stock broker shall not make a recommendation to any client who might be expected to rely thereon to acquire or dispose of any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client.

C) Duties towards its sub-brokers and other stock-brokers:

1. Conduct of dealings: A stock-broker shall co-operate with the other stock-brokers or sub-brokers contracting party in comparing unmatched transactions.

2. Protection of client interests: A stock-broker shall extend fullest co-operation to other stock-brokers or sub-brokers in protecting the interest of his clients regarding their rights to dividends, bonus etc.

3. Advertisement and publicity: A stock-broker shall not advertise his business publicly unless permitted by the stock exchange.

4. Inducement of clients: A stock-broker shall not resort to unfair means of inducing clients from other stock-brokers.

5. False or misleading returns: A stock-broker shall not neglect or fail to refuse to submit the required return and not make any false or misleading statement on any returns required to be submitted to the board and the stock exchange.