Basic Terms5 min read

What is Sub-Broker? Role of Sub-Brokers in Indian Capital Markets

A sub-broker, now officially called an Authorised Person (AP) by SEBI, is someone who works under a main stockbroker to bring in clients and facilitate their trades. The sub-broker does not have direct exchange membership. Instead, they operate under the licence of a registered broker and earn a share of the brokerage generated by the clients they bring.

In many smaller towns across India, the local person who helps you open a demat account, explains how to place orders, and assists with trading is often a sub-broker or authorised person working under a larger brokerage firm. They serve as the local face of the broker, providing a physical presence where the broker does not have a branch.

How Does the Sub-Broker Model Work?

The main broker holds the exchange membership and regulatory responsibility. The sub-broker brings clients to the main broker and may help them with order placement and account-related queries. Brokerage paid by the client goes to the main broker, who then shares a portion with the sub-broker based on their agreement.

SEBI requires all sub-brokers to be registered as Authorised Persons with the exchange. They must pass a certification exam and follow the same code of conduct as the broker they represent.

What Changed in SEBI's Sub-Broker Regulations?

SEBI discontinued the sub-broker category in 2019 and replaced it with the Authorised Person framework. Existing sub-brokers had to either convert to Authorised Persons or obtain their own broker licence. The change brought clearer regulatory accountability and standardised the requirements for intermediaries operating under a main broker.

Investments in securities market are subject to market risks. This article is for educational purposes only.

Frequently Asked Questions

Is dealing with a sub-broker safe for investors?

As long as the sub-broker is a SEBI-registered Authorised Person operating under a legitimate broker, it is safe. Your account is with the main broker and your shares are with the depository. The sub-broker facilitates the process but does not hold your money or shares. Always verify the AP registration on the exchange website before dealing with them.

Can a sub-broker give me investment advice?

An Authorised Person is permitted to bring clients and facilitate trades, but providing investment advisory requires a separate SEBI registration as a Research Analyst or Investment Adviser. Many sub-brokers do share stock ideas informally, but they are not legally authorised to provide advisory unless separately registered. Be cautious about acting on tips from unregistered persons.

How much does a sub-broker earn?

Sub-broker earnings depend on their revenue-sharing agreement with the main broker, typically ranging from 30% to 70% of the brokerage generated by their clients. Active sub-brokers with a large client base can earn substantially. The income is directly proportional to the trading activity of their clients.

Can I become a sub-broker or Authorised Person?

Yes. You need to register with a SEBI-registered broker, pass the NISM certification exam for Authorised Persons, and complete the registration process with the exchange. The main broker sponsors your registration. It is a viable business for individuals with good local networks and interest in financial markets.

What is the difference between a sub-broker and a franchise?

In practice, they are similar. Both operate under a main broker's licence and earn a share of brokerage. The term franchise is used by some brokers to describe their partner network, while Authorised Person is the official SEBI terminology. The regulatory requirements and the relationship structure are essentially the same.

Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.