Difference Between Sub Broker and Stock Broker

5 mins read

You can’t just go to the stock exchange and buy stocks right away because only the registered members of the bourses are permitted to do so. Stockbrokers are the individuals that participate in the trading process. Stockbrokers ensure that the market is always liquid, making them critical players in the capital markets ecosystem. They are the vital link between the customers and sellers. This article has detailed the roles of stockbrokers in the stock market.

What Does It Mean To Be A Stockbroker?

A stockbroker is an individual or a company that executes buy and sell orders for investors on their behalf. They have a customer base to which they cater. Brokerage fees are a percentage of the entire value of funds invested by the users, and they work for a commission known as brokerage fees.

There are two types of brokers. The full-service brokers charge a higher commission rate and offer a broader range of products.

The second type is discount brokers. They restrict themselves in executing buying and selling orders of the client and charge lower fees. Recently, a third group operated on a hybrid model, providing all of the services of a full-service broker at a flat brokerage charge.

What Does It Mean To Be an Authorised Person?

From a hierarchical standpoint, an authorized person (earlier called sub-broker) acts as an agent for the stockbrokers. They serve as a conduit between stockbrokers and clients. Following client sourcing, an authorized person would be responsible for additional research and client management. They receive a percentage of the brokerage paid to stockbrokers for their services.

A stockbroker and an agent have a one-to-many relationship. In general, a stockbroker has a presence in various parts of the country through its sub-broking partners. These agents bring new business to the stockbroker by acquiring new clients in their geographic area.

Difference Between A Stockbroker And An Authorised Person

Although the core function of both is the same, there are some subtle differences to be aware of:

● A broker is an individual or, more usually, a corporation that works independently, whereas an authorized person acts as an agent for a broker. To operate their business, they may require a certificate from the exchange.

● Besides SEBI registration, the authorized person must enter into a tri-party agreement with the brokers and the client.

● Only stockbrokers are permitted to charge clients directly for brokerage. Authorized persons only get a portion of the brokerage as commission from the brokers once the full brokerage is computed.

Importance Of Stockbroker And Authorised Persons

● Stockbrokers, as previously said, play a critical role in the capital markets.

● They are an integral part of the supply chain containing companies, exchanges, buyers, sellers, and other stakeholders.

● The role of the authorized person is also crucial. They provide brokers with the information they require.

● People having a good network of contacts might be encouraged by stockbroker businesses.

● Investors must contact local agents for stock investment assistance.

Characteristics Of A Stockbroker

● When stockbroker partners hire the right agent, they benefit from the latter’s large client base and expand their business.

● They can charge brokerage fees from the client.

Characteristics Of An Authorised Person

  • Authorized Persons are paid a higher commission for convincing clients to invest and conducting the necessary research.

  • They also gain access to the broker businesses’ marketing materials and trading tools as a result of this. Apart from the initial deposit, there is a relatively low initial investment.

  • Working with a reputed broker in the industry allows you to acquire advisory support, which is critical for successfully closing a business but requires a lot of human resources.

  • Because an authorized person cannot charge the clients on their own, it is also vital to associate with a suitable broker firm that pays a fair share of the fee and is an established brand name.

Wrapping Up

Both brokers and agents play an essential role in stock trading. They have a lot in common, yet in the end, they each provide unique services. Hence, investors must learn the critical differences between the two before investing. Let Angel One assist you in taking the next step forward if you want to be an authorized person or any other partner in the stockbroking space.

Frequently Asked Questions (FAQs)

Q1. What are the daily obligations of a stockbroker?

A stockbroker is a registered financial market representative who facilitates the trading of securities on behalf of financial institutions, investor clients, and businesses. A stockbroker’s primary responsibility is to collect and execute buy and sell orders.

Q2. What is the function of an authorized person?

Authorized persons assist stockbrokers in growing their business volume by purchasing, selling, and dealing with securities. They increase the stockbroker’s business book by bringing in new investors and assisting existing clients in reinvesting.

Q3. What is the definition of an authorized person?

An Authorised Person (previously known as a sub-broker) is a person who is linked with a member of a recognized stock exchange and is registered with SEBI.