An authorized person agreement is an important document that forges a partnership between the broking house and the authorized person. It lists the terms and conditions between the two parties, describe rules and regulation that each must follow, and their respective rights. It states the terms that authorized persons need to follow to maintain a high level of transparency to avoid pitfalls.
An authorized person cannot start operating until the agreement is drawn, and registration is complete with SEBI. So, in case you want to know what it states, we, in this article, have described some of the essential clauses of the authorized person agreement of which you must take note.
Meanwhile, when we are discussing what an authorized person agreement is, you may also want to understand how to enroll yourself or the code of conduct of authorized persons and stockbrokers.
Clauses describing an authorized person’s benefits
An authorized person agreement is a business document outlining the rights and interests of an authorized person while entering into a partnership with a stockbroker. According to such agreement, an authorized person is entitled to the following rights,
– It prohibits stockbrokers from indulging in anything unfair act that may cause the client to dissociate from the authorized person
– In case of any dispute, both parties will have to abide by the rules of the stock exchange
– If the problem cannot get solved by the officials in the stock exchange, it will get referred for arbitration
– Either party can discontinue the agreement. In case the stockbroker decides to terminate the agreement, it needs to update the exchange accordingly and clear any pending fees with the regulator
– A stockbroker cannot transact a higher amount than agreed between it and the authorized person on behalf of the latter
Authorized person’s code of conduct
The Authorised person agreement, also describes the duty of an authorized person towards the stockbroker, which has employed him. Since it is a business agreement, it clearly defines the code of conduct the authorized person must follow to keep his association with the stockbroker. According to the authorized person agreement,
– There must be a consensus between a stockbroker and authorized person regarding commission pay-out
– The document caps the maximum percentage of commission based on the value of the transaction carried out by the authorized person
– An authorized person must maintain a detailed record of all the transactions carried out by him and update the stockbroker about it
– The agreement prevents authorized persons from material modification on its status or changing the constitution without the consent of the stockbroker. It is an important clause that authorized persons need to acknowledge to get approval from SEBI
– Authorised persons can carry out security dealing only on behalf of the broking house
– The authorized person will require stockbroker’s approval to issue any document including bills, confirmation memo, statement of funds, securities, and more
– The authorized person will have to furnish, in demand, all bank transactions and DP statement details to the stockbroker
– The agreement also approves internal control by a stockbroker. An authorized person must allow any time scrutiny from the stockbroker on the authorized person’s records, deposits, client documents, authorized person documents, and large volume transactions carried out by him
– In case of complaints from clients, the stockbroker can stop paying a commission on the deal to the authorized person till the matter resolves
– Under the agreement, the authorized person is required to display trading member’s display board stating guidelines for the investors including, trading member’s contact details, compliance office, mode of payment, and regulations regarding receiving delivery of securities
Terminating an authorized person agreement
Either party can terminate the agreement without citing any reason. However, if the stockbroker terminates the agreement, it must collect the registration certificate from the authorized person and submit it to SEBI along with pending fees and arrears. Simultaneously, the stockbroker must also inform all investors through a newspaper announcement regarding dissolving the agreement.
The authorized person agreement describes the benefits enjoyed by both the parties and states the limitations of each. In terms of maintaining the credibility of the capital market, an authorized person agreement is a critical document. It is the Magna Carta that ensures that a partnership is established between the stockbroker and authorized persons based on integrity and transparency.
If you are interested in commencing a journey as an authorized person (Formerly known as a Sub Broker), we can assist you in fulfilling your career goals. Angel One is one of the top full-fledged stock broking houses in India with more than 1 million active clients.