An authorised person agreement is a significant contract that cements the brokerage house’s relationship with the authorised person. It lays out the terms and conditions between the two parties and the rules and regulations that both parties and their respective rights must follow. It lays forth the rules that authorised individuals must follow to maintain a high level of transparency and avoid hazards.
An authorised person cannot begin working until the agreement has been written out and SEBI registration has been completed. So, in case you’re curious about what it says, we’ve outlined some of the key articles of the authorised person agreement that you should be aware of in this article.
Things to Consider while signing an agreement
When you first open a trading account with a broker, you will be handed a lengthy application as well as an agreement booklet to sign as an investor. And, in most cases, only a small percentage of investors read the fine print. You and the broker’s agreement is almost certainly slanted in favour of the broker.
Ensure that you are not providing the broker or sub-broker authorisation to place trades on your behalf while reviewing the form and agreement. Pay special attention to the section on power of attorney (PoA). The PoA authorises the broker to deal on your behalf once you sign it. Some investors also sign a Power of Attorney to authorise the transfer of monies from their bank accounts.This might be costly if the brokerage business decides to make unauthorised trades from their accounts.
It’s also a great idea to have the broker or an authorised representative sign all of the agreement’s pages. Witnesses must also sign the agreement and provide their name and address.
To avoid being fooled:
- Insist on a contract note for each transaction and double-check the contract note’s details.
- Cross-check the details of your trade with the details on the exchange’s website if you have any doubts.
- For each settlement, insist on a bill.
Meanwhile, since we’re talking about an authorised person agreement, you might also be interested in learning how to enrol or the authorised person and stockbroker code of conduct.
Benefits described by an approved person clauses
An authorised person agreement is a commercial document that outlines an authorised person’s rights and interests when forming a partnership with a stockbroker. An authorised person is entitled to the following powers under such an agreement:
- It forbids stockbrokers from engaging in any unethical behaviour that could cause a client to separate from the authorised person.
- Both sides must agree that in the event of a conflict must follow the stock exchange’s guidelines.
- If the stock exchange officials are unable to resolve the issue, it will be referred to arbitration.
- Either side can terminate the agreement. If the stockbroker wishes to stop the agreement, it must notify the exchange and settle any outstanding fees with the regulator.
- A stockbroker is prohibited from transacting more than the amount agreed upon between it and the authorised individual acting on behalf of the latter.
Code of Conduct for Authorized Persons
The Authorised Person Agreement also outlines an authorised person’s responsibilities to the stockbroker who hired him. Because it is a commercial agreement, it specifies the code of conduct that the authorised person must attach to in order to maintain the relationship with the stockbroker. The authorised person agreement states that
- A stockbroker and an authorised person must agree when it comes to commission pay-outs.
- Based on the value of the transaction carried out by the permitted person, the document caps the maximum percentage of commission.
- An approved person must keep a complete record of all transactions he does and inform his stockbroker.
- The agreement forbids approved personnel from materially altering its status or amending its constitution without the stockbroker’s consent. It is a crucial phrase that approved parties must accept in order to obtain SEBI clearance.
- Authorised individuals can only deal in securities on behalf of the brokerage company.
- Any document, including bills, confirmation memos, statements of funds, stocks, and more, will require the approval of a stockbroker.
- The authorised person must provide all bank transactions and DP statement details to the stockbroker upon demand.
- A stockbroker’s internal control is also approved by the agreement. An authorised person must allow the stockbroker to examine his or her records, deposits, client documents, authorised person documents, and big volume transactions at any time.
- If a client complains, the stockbroker might cease paying the approved person a commission on the trade until the issue is resolved.
- The authorised person is required under the agreement to post a trading member’s display board with guidelines for investors, including the trading member’s contact information, compliance office, mode of payment, and regulations for receiving securities delivery.
Terminating an arrangement with an authorised person
The contract can be terminated at any instant by any party without giving a reason. If the brokerage ends the arrangement, the authorised person must collect the registration certificate and return it to SEBI along with any outstanding fees or arrears. Simultaneously, the stockbroker must notify all investors of the agreement’s termination via a newspaper statement.
The authorised person agreement outlines the benefits that both parties get as well as their respective constraints. An approved person agreement is a crucial instrument for sustaining the capital market’s confidence. The service provider company ensures that a partnership based on integrity and transparency is established between the stockbroker and permitted individuals.