A sub-broker is any individual who is not a member of a stock exchange but acts on behalf of a member –broker as an agent or otherwise for assisting the investors in purchasing, selling or dealing in securities through member-brokers.
All sub-brokers have to submit to obtain a certificate of registration from SEBI failing to which they are not allowed to deal in securities. SEBI has issued a notice stating that no broker will be allowed to deal with an individual who is acting as a sub-broker unless he is registered with SEBI and it shall be the responsibility of that member-broker to ensure that his clients are not acting in any capacity as a sub-broker unless they are registered with SEBI as a sub-broker.
It is compulsory for member-brokers to enter into an agreement with all the sub-brokers. The agreement lays down the rights and responsibilities of member-brokers as well as sub-brokers.
According to SEBI, there are certain norms and regulations which he has to follow. Some of them are listed below:
1) A sub-broker will have to maintain separate account books in respect to his dealings with his affiliated members, if he is doing business with more than one member. Under no circumstances he will be allowed to mix funds received from payable member with that of another.
2) A sub-broker agrees to the fact that he will not except with the consent of the sub-broker, commit on his behalf transactions in commodity futures in excess of the amount mutually agreed upon in writing from time to time being the aggregate value of such transactions agreed upon to be transacted in any contact and the maximum outstanding position due of a client will also be limited to such limits as specified by the sub-broker.
3) The sub-broker and member will have to agree that both will ensure protection to their clients regarding their rights and neither of them shall together or individually do anything which will in most likely harm the interest of clients for whom they have committed transactions and commodity futures.
4) It will be the responsibility of the member to inform the sub-broker and keep him informed about any form of trading/settlement cycles, delivery payment schedules, charges if any included from time to time. It shall also be his responsibility in return of the sub-broker to agree with such procedures of the mentioned exchange of which the member is a member.
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