Broking

The process of investing in the share market, either individually or through a broker is known as stock broking, in simple terms. This is primarily done by opening a demat account. If done through a broker, he opens an account, helping you to operate through online stock broking facility. Going ahead the broker suggests investment ideas and strategies suiting individual requirements and based on his objective of investment. Tenure of investment, the selected financial instruments and their respective companies, the schemes, the risk taking ability, the sum available for investment, all are considered while forming investment choices. After the amount is invested, the broker tracks and monitors the investments, changes or reinvests depending on the performance and generates reports for them. This entire process is known as stock broking. A broker is a person who buys and sells shares and other securities through market makers or agency only firms on behalf of investors. Types of Brokers:

Aircraft broker Broker-dealer Brokerage firm Business broker Commodity broker Customs broker Information broker Insurance broker Investment broker Joint venture broker Leasing broker List broker

Marriage broker Mortgage broker Options broker Power broker (term) Prime broker Real estate broker Retail broker Ship broker Sponsorship broker Stock broker Office broker Serviced office broker

Need for a broker:

A transaction on a stock exchange must be made between two members of the exchangean ordinary person may not walk into the New York Stock Exchange (for example), and ask to trade stock. Such an exchange must be done through a broker. A stockbroker is a person who invests in the stock market for individuals or corporations. Only members of the stock exchange can conduct transactions, so whenever individuals or corporations want to buy or sell stocks they must go through a brokerage house.
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Stockbrokers often advice and counsel their clients on appropriate investments. Brokers explain the workings of the stock exchange to their clients and gather information from them about their needs and financial ability, and then determine the best investments for them. The broker then sends the order out to the floor of the securities exchange by computer or by phone. When the transaction has been made, the broker supplies the client with the price. The buyer pays for the stock and the broker transfers the title of the stock to the client and performs clearing and settlement procedures.

Who can be a broker

Stockbrokers must pass two licensing examinations, called the Series 7 and Series 63. Successfully completing these exams allows the broker to advise you, to solicit business from you, and to execute transactions on your behalf. A stock broker must possess the following qualifications to register as a broker: I. He must be a citizen with 21 years of age. ii. He should neither e a bankrupt not compounded with creditors. iii. He should not have been convicted for any offence, fraud. iv. He should not have engaged in any other business other than that of a broker in securities. v. He should not be a defaulter of any stock exchange. vi. He should have completed 12th standard examination. Apart from individuals, corporate and institutional members can also become brokers. Brokers will be selected by the selection committee of the stock exchange on the basis of their qualifications, experience, financial status, their performance in the written test, interview etc.

SEBI Guidelines for Broker

SECURITIES CONTRACTS (REGULATION) RULES, 1957 [NOTIFICATION NO.SRO 576, DATED 21-2-1957] In exercise of the powers conferred by section 30 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Central Government hereby makes the following rules, the same having been previously published as required by sub-section (3) of the said section, namely: Short title: 1. These rules may be called the Securities Contracts (Regulation) Rules, 1957. Definition: 2. In these rules, unless the context otherwise requires, (a) form means a form appended to these rules; (b) the Act means the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (c) Government company means a company in which not less than fiftyone per cent of the share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments. Application for recognition: 3. An application under section 3 of the Act for recognition of a stock exchange shall be made to the 1[Securities and Exchange Board of India] in Form A. Fees for application: 4. (1) There shall be paid in respect of every application under rule 3 a fee of rupees five hundred. (2) The amount of the fee shall be deposited in the nearest Government treasury or the nearest branch of the State Bank of India: Provided that at Bombay, Calcutta, Madras, Delhi and Kanpur, the amount shall be deposited in the Reserve Bank of India. (3) The amount of the fee so deposited shall be credited to the receipt head XLVI Miscellaneous Other fees, fines and forfeitures.
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(4A) A Company as defined in the Companies Act, 1956 (1 of 1956) shall also be eligible to be elected as a member of Stock Exchange if (i) such company is formed in compliance with the provisions of section 12 of the said Act; 1 Substituted for Central Government by Amendment Rules, 1996. w.e.f 23.12.1996 (ii) such company undertakes to comply with such financial requirement and norms as may be specified by the Securities and Exchange Board of India for the registration of such company under sub-section (1) of section12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (iii) majority of the directors of such company are shareholders of the company and not less than 40% of the paid-up equity capital of the company is held by these directors themselves or by the body corporate appointing them as directors on the board of such company; (iv) the directors of the company are not disqualified for being members of a stock exchange under clause (1) [except sub-clause (f) thereof] or clause (3) [except subclause (f) thereof] and the directors of the company had not held the offices of the directors in any company which had been a member of the stock exchange and had been declared defaulted or expelled by the stock exchange; and (v) not less than two directors of the company are persons who possess a minimum two years experience: (a) in dealing in securities; or (b) as portfolio managers; or (c) as investment consultants. Documents to be filed along with the application and particulars it should contain: 5. Every application shall be accompanied by four copies of the rules (including the memorandum and articles of association where the applicant stock exchange is an incorporated body) and bye-laws of the stock exchange applying for recognition as specified in section 3 of the Act and the receipt granted by the Government treasury, or as the case may be, the State Bank of India or the Reserve Bank of India, in respect of the amount of the fee deposited and shall contain clear particulars as to the matters specified in the Annexure to Form A. Qualifications for membership of a recognised stock exchange. 8. The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that: (1) No person shall be eligible to be elected as a member if (a) he is less than twenty-one years of age;
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(b) he is not a citizen of India; provided that the governing body may in suitable cases relax this condition with the prior approval of the 4[Securities and Exchange Board of India]; (c) he has been adjudged bankrupt or a receiving order in bankruptcy has been made against him or he has been proved to be insolvent even though he has obtained his final discharge; (d) he has compounded with his creditors unless he has paid sixteen annas in the rupee; (e) he has been convicted of an offence involving fraud or dishonesty; (f) he is engaged as principal or employee in any business other than that of securities 5[or commodity derivatives] except as a broker or agent not involving any personal financial liability unless he undertakes on admission to sever his connection with such business: Provided that no member may conduct business in commodity derivatives, except by setting up a separate company which shall comply with the regulatory requirements, such as, networth, capital adequacy, margins and 3 Substituted for Central Government by Amendment Rules, 1996. w.e.f 23.12.1996 4 ibid 5 Inserted by Amendment Rules 2003, w.e.f 28.8.2003 6 Substituted by the amendment Rules, 2003 w.e.f 28.8.2003, Earlier, it was amended by the Amendment Rules, 1996, w.e.f.12.1996. Prior to the substitution it reads as under; Provided that the Securities and Exchange Board of India may, for reasons sufficient in the opinion of the said Board, permit a recognized stock exchange to suspend the enforcement of this clause for a specified period on condition that the applicant is not associated with or is a member of or subscriber to or shareholder or debenture holder in or connected through a partner or employee with any other organization, institution, association, company, or corporation in India where forward business of any kind whether in goods or commodities or otherwise is carried on or is not engaged as a principal or employee in any such business; exposure norms as may be specified by the Forward Market Commission, from time to time: Provided further that nothing herein shall be applicable to any corporations, bodies corporate, companies or institutions referred to in items (a) to (k) of the proviso to sub-rule (4).]; (g) [***] (h) he has been at any time expelled or declared a defaulter by any other stock exchange; (i) he has been previously refused admission to membership unless a period of one year has elapsed since the date of such rejection. (2) No person eligible for admission as a member under sub-rule (1) shall be admitted as a member unless:

(a) he has worked for not less than two years as a partner with, or an authorised assistant or authorised clerk or remisier or apprentice to, a member; or (b) he agrees to work for a minimum period of two years as a partner or representative member with another member and to enter into bargains on the floor of the stock exchange and not in his own name but in the name of such other member; or (c) he succeeds to the established business of a deceased or retiring member who is his father, uncle, brother or any other person who is, in the opinion of the governing body, a close relative: Provided that the rules of the stock exchange may authorise the governing body to waive compliance with any of the foregoing conditions if the person seeking admission is in respect of means, position, integrity, knowledge and experience of business in securities, considered by the governing body to be otherwise qualified for membership. (3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if (a) he ceases to be a citizen of India: Provided that nothing herein shall affect those who are not citizens of India but who were members at the time of such application or were admitted subsequently under the provisions of clause (b) of sub-rule (1) of this rule, subject to their complying with all other requirements of this rule; (b) he is adjudged bankrupt or a receiving order in bankruptcy is made against him or he is proved to be insolvent; (c) he is convicted of an offence involving fraud or dishonesty; (d) [* * *] (e) [* * *] (f) he engages either as principal or employee in any business other than that of securities 7[or commodity derivatives] except as a broker or agent not involving any personal financial liability, provided that (i) the governing body may, for reasons, to be recorded in writing, permit a 7 Inserted by the Amendment Rules, 2003, w.e.f. 28.8.2003. member to engage himself as principal or employee in any such business, if the member in question ceases to carry on business on the stock exchange either as an individual or as a partner in a firm, (ii) in the case of those members who were under the rules in force at the time of such application permitted to engage in any such business and were actually so engaged on the date of such application, a period of three years from the date of the grant of recognition shall be allowed for severing their connection with any such business, 8(iii) nothing herein shall affect members of a recognised stock exchange which are corporations, bodies corporate, companies or institutions referred to in items (a) to (k) of the proviso to sub-rule (4).]

(4) A company as defined in the Companies Act, 1956 (1 of 1956), shall be eligible to be elected as a member of a stock exchange if (i) such company is formed in compliance with the provisions of section 322 of the said Act; (ii) a majority of the directors of such company are shareholders of such company and also members of that stock exchange; and (iii) the directors of such company, who are members of that stock exchange, have ultimate liability in such company: Provided that where the 9[Securities and Exchange Board of India] makes a recommendation in this regard, the governing body of a stock exchange shall, in relaxation of the requirements of this clause, admit as member the following corporations 10[,bodies corporate], companies or institutions, namely: (a) the Industrial Finance Corporation, established under the Industrial Finance Corporation Act, 1948 (15 of 1948); (b) the Industrial Development Bank of India, established under the Industrial Development Bank Act, 1964 (18 of 1964); (c) the Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956 (31 of 1956); (d) the General Insurance Corporation of India constituted under the General Insurance Corporation (Nationalisation) Act, 1972 (57 of 1972); (e) the Unit Trust of India, established under the Unit Trust of India Act, 1963 (52 of 1963); 8 Substituted, ibid. Prior to its substitution, clause (iii) read as under : (iii) nothing herein shall affect members of a recognized stock exchange permitted under the proviso to clause (f) of sub-rule (1) to suspend the enforcement of the aforesaid clause, for so long as such suspension is effective, except that no member of such exchange shall engage in forward business of any kind whether in goods or commodities or otherwise and, if actually so engaged on the date of such application, he shall sever his connection with any such business within a period of three years from the date of the grant of recognition. 9 Substituted for Central Government by the Amendment Rules, 1996, w.e.f 23.12.1996. 10 Inserted by the Amendment Rules, 2003, w.e.f. 28.8.2003. (f) the Industrial Credit and Investment Corporation of India, a company registered under the Companies Act, 1956 (1 of 1956); (g) the subsidiaries of any of the corporations or companies specified in (a) to (f) and any subsidiary of the State Bank of India or any nationalised bank set up for providing merchant banking services, buying and selling securities and other similar activities. 11[(h) any bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (i) the Export Import Bank of India, established under the Export Import Bank of India Act, 1981 (28 of 1981);

(j) the National Bank for Agriculture and Rural Development, established under the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); and (k) the National Housing Bank, established under the National Housing Bank Act, 1987 (53 of 1987).] (4A) A company as defined in the Companies Act, 1956 (1 of 1956), shall also be eligible to be elected as a member of a stock exchange if (i) such company is formed in compliance with the provisions of section 12 of the said Act; (ii) such company undertakes to comply with such financial requirements and norms as may be specified by the Securities and Exchange Board of India for the registration of such company under sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (iii) 12 (iv) the directors of the company are not disqualified from being members of a stock exchange under 13[clause (1) [except sub-clause (b) and sub-clause (f) thereof] or clause (3) [except sub-clause (a) and sub-clause (f) thereof]] and the Directors of the company had not held the offices of the Directors in any company which had been a member of the stock exchange and had been declared defaulter or expelled by the stock exchange; and (v) not less than two directors of the company are persons who possess a minimum two years experience: (a) in dealing in securities; or (b) as portfolio managers; or (c) as investment consultants. (5) Where any member of a stock exchange is a firm, the provisions of subrules (1), (3) and (4), shall, so far as they can, apply to the admission or continuation of any partner in such firm. 11 Inserted by the Amendment Rules, 2003, w.e.f. 28.8.2003 12 Omitted by the Second Amendment Rules, 1994, w.e.f. 12.10.1994. 13 Substituted for clause (1) {except sub-clause (f) thereof} or clause (3) [except sub-clause (f) thereof] by the Fourth Amendment Rules, 1994, w.e.f 07.11.1994. Contracts between members of recognised stock exchange: 9. All contracts between the members of a recognised stock exchange shall be confirmed in writing and shall be enforced in accordance with the rules and bye-laws of the stock exchange of which they are members. 14[Nominees of the Securities and Exchange Board of India] on the governing bodies of recognised stock exchanges.
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10. The 15[Securities and Exchange Board of India] may nominate one or more persons not exceeding three in number, as member or members of the governing body of every recognised stock exchange. Such member or members shall enjoy the same status and powers as other members of the governing body. Obligation of the governing body to take disciplinary action against a member if so directed by the 16[Securities and Exchange Board of India]. 11. After receiving the report of the result of an enquiry made under clause (b) of subsection (3) of section 6 of the Act, the 16[Securities and Exchange Board of India] may take such action as they deem proper and, in particular, may direct the governing body of the stock exchange to take such disciplinary action against the offending member, including fine, expulsion, suspension or any other penalty of a like nature not involving the payment of money, as may be specified by the 16[Securities and Exchange Board of India]; notwithstanding anything to the contrary contained in the rules or bye-laws of the stock exchange concerned, the governing body shall give effect to the directions of the 16[Securities and Exchange Board of India] in this behalf and shall not in any manner commute, revoke or modify the action taken in pursuance of such directions, without the prior approval of the 16[Securities and Exchange Board of India]. The 16[Securities and Exchange Board of India] may, however, either of its own motion or on the representation of the member concerned, modify or withdraw its direction to the governing body. Audit of accounts of members. 12. Every member shall get his accounts audited by a chartered accountant whenever such audit is required by the 16[Securities and Exchange Board of India]. Withdrawal of recognition. 13. The written notice referred to in section 5 of the Act shall be in Form C. Books of account and other documents to be maintained and preserved by every recognised stock exchange. 14. Every recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years:
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14 Substituted for Government nominees by the Third Amendment Rules, 1994, w.e.f. 26.10.1994. 15 Substituted for Central Government, ibid. 16 Substituted for Central Government by the Amendment Rules, 1996, w.e.f. 23.12.1996. (1) Minute books of the meetings of (a) members; (b) governing body; (c) any standing committee or committees of the governing body or of the general body of members. (2) Register of members showing their full names and addresses. Where any member of the stock exchange is a firm, full names and addresses of all partners shall be shown. (3) Register of authorised clerks. (4) Register of remisiers of authorised assistants. (5) Record of security deposits. (6) Margin deposits book. (7) Ledgers. (8) Journals. (9) Cash book. (10) Bank pass-book. Books of account and other documents to be maintained and preserved by every member of a recognised stock exchange. 15. (1) Every member of a recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years: (a) Register of transactions (Sauda book). (b) Clients ledger. (c) General ledger. (d) Journals. (e) Cash book. (f) Bank pass-book. (g) Documents register showing full particulars of shares and securities received and delivered. (2) Every member of a recognised stock exchange shall maintain and preserve the following documents for a period of two years: (a) Members contract books showing details of all contracts entered into by him with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other members. (b) Counterfoils or duplicates of contract notes issued to clients. (c) Written consent of clients in respect of contracts entered into as principals.

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Eligibility in terms of capital adequacy

A stock broker is required to pay to SEBI a registration fee of Rs.5,000 for every financial year, if his annual turnover exceeds Rs.1 crore. If this is so, he has to pay Rs.5,000 plus one-hundredth of 1% of the turnover in excess of Rs.1 crore. After the expiry of 5 years from the date of initial registration as a broker, he has to pay Rs.5,000 for a block of 5 financial years. The a trading member can levy a maximum brokerage in respect of securities transactions is 2.5% of the contract price, exclusive of statutory levies like SEBI fee, service tax and stamp duty. Brokerage charges can be as low as 0.15% and maximum brokerage is inclusive of brokerage charged by the sub broker which shall not exceed 1.5% of the contract price. The brokers of the various stock exchanges filed writ petitions in various High Courts challenging the imposition of fees on turnover to be paid by the brokers under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1990, which were subsequently transferred to the Supreme Court. The petitions were filed on the ground that it is a tax on the guise of the fee and is excessive or arbitrary. One of the case filed was of SEBI v. BSE Brokers Forum in which the validity of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulation, 1992 was challenged. Supreme Court directed SEBI to amend the regulations following the recommendations of R. S. Bhatt Committee, which had given recommendations in respect of the computation of turnover of brokers under the regulations.

Duties and obligations of brokers

Fair dealing: A stockbroker has a fundamental responsibility for fair dealing. The rules and regulations of the securities industry require a stockbroker to treat his customer in a fair manner characterized by high standards of honesty and integrity. Besides being governed by securities laws and commercial regulations, stockbrokers are subject to the rules of self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA). FINRA Rules of Fair Practice impose the following standard upon members of the securities industry: "A member, in the conduct of his business, shall observe

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high standards of commercial honor and just and equitable principles of trade." This standard (along with other FINRA rules) is enforceable as the standard to which public customers are entitled to depend. Duty of Loyalty: Since stockbrokers are compensated through commissions on the transactions which they execute, there is some inherent tension between the broker's interests and the interests of the customer. It is the broker's responsibility to always place the interests of the customer first. The broker's obligations and duty to the customer must be paramount, and for a broker conducting himself properly this will not present a conflict.

A prime example of the broker's obligation to keep the customers interests first is the question of trading frequency in the account. The broker is obligated to recommend trades which meet the needs of the customer, not merely to generate commissions for him. Excessive trading by a broker involving purchasing and selling securities for the purpose of increasing commissions is known as "churning", and it is prohibited. Obligation of Disclosure

A broker also has a duty to disclose all material information in connection with an investment recommendation. In general, the broker has an obligation to disclose all information which may be reasonably relevant to an investor to take into consideration in making an informed investment decision. In particular, a broker has an obligation to disclose the various risks and level of risk of an investment recommendation. Brokers have a duty to be truthful in all communications with customers. Brokers are held to a standard that their communications should provide a sound basis for evaluating any securities being recommended. In particular, exaggerated, false or misleading statements are prohibited in a stockbroker's communications with the public. Authorization for Trading

A broker may not execute trades in a customer's account unless the customer has approved and authorized the trade in advance, or has given the broker discretionary trading authority (the power for the broker to make trading decisions in the account). A broker may not engage in unauthorized trading. On the other hand, a broker has an obligation to carry out the instructions of the customer. Requirement of Suitable Recommendations

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Perhaps one of the most important and least known obligations of a stockbroker is the requirement for all investment recommendations to be consistent with the customer's financial status, investment objectives, level of understanding and risk tolerance. According to this suitability rule and the requirement of the "know your customer" rule, a broker must have reasonable grounds for believing that the recommendation is suitable and appropriate for that particular customer based upon his individual financial situation, understanding and needs. It is the responsibility of the stockbroker to make reasonable efforts to obtain the relevant information regarding the customer and recommended investments. The "know your customer" rule requires that the broker obtain a customer profile so that the broker will be able to properly match the needs of the customer with appropriate investments. The broker is also required to use care in connection with knowing the investments which are recommended.

Special Situations

Certain forms of investments pose particular problems, and therefore, brokers have additional duties in connection with such activity. For example, trading with money borrowed from the brokerage firm, known as trading on margin, is a carefully regulated activity. Brokers also have special responsibilities in connection with options trading and private placement limited partnerships among other forms of investments. Supervisory Responsibility and Duty of Good Faith

A brokerage firm has a responsibility to supervise the activities of its brokers. The firm must maintain a system to enforce compliance with rules and to prevent violations of securities laws and regulations. The responsibility of the brokerage firm to supervise its agents is especially important since many customers maintain their account with a particular firm and follow the advice of their broker based upon the name of the firm standing behind the broker. A stockbroker and brokerage firm has the responsibility to conduct themselves with good faith in their interaction with customers. Customers place their trust and reliance in the broker and brokerage firm to treat them in accordance with the high standards imposed upon the securities profession. The fact that many customers place their total faith and reliance in the broker viewing him as a trusted advisor and putting their financial affairs in his hands, certainly should heighten the broker's responsibilities and duty of good faith.

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Activities in terms of dos and donts for brokers DOS

Recruit New Clients

One of the main responsibilities of a stock broker is to recruit new clients. Brokers use several tactics to attain new clients. They cold call prospects, introduce themselves and offer a free consultation. Brokers contact the people they know such as family members, friends and past co-workers. They ask their current clients to refer their friends and family to them. Brokers also hold free seminars in their community where they offer advice on a financial topic such as planning for retirement. The broker's hope when holding these seminars is that some attendees will become clients.

Build Relationships with Clients

A major attribute of good stock brokers is that they know how to build relationships with their clients. After a broker gets a new client he must learn about the client's financial situation and goals. He also must understand the client's tolerance for risk. Brokers need to get to know their clients in order to be able to give them appropriate advice and plan long term investment strategies that will meet their financial goals. Brokers should build a trusting relationship with their clients so that they remain clients for a long time.

Advise Clients

After a broker understands a client's financial situation and the goals they are striving for she will make recommendations regarding the client's investment portfolio. The broker will use her knowledge and training to advise the client about portfolio changes and new investment opportunities. Brokers must always have the client's best interest in mind when making recommendations. Also, they are required to only give advise that is suitable for the client's goals, financial situation and risk tolerance.

Execute Trades

When a client decides to buy or sell an investment, the broker fills out the appropriate forms and executes the trade. It is the broker's responsibility to ensure that the trade was filled properly.

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Monitor Clients' Portfolios

It is the broker's duty to keep watch over his clients' investments. If market conditions shift or a client's financial situation changes the broker must recommend the appropriate course of action. As a result, it is important for a broker to keep in close communication with his clients. The broker also must have a deep understanding of the markets and watch the market action on a daily basis.

DONTS
A stock broker should not deal with any outside party which has failed to honour its business obligations with any other stock broker of any other stock exchange. So, the names of the defaulting clients should be reported by the member of the stock exchange authorities. A stock broker should not get involved into any fraudulent activities with an intention to cheat the customers.

Sub Broking
Sub Broker is any person, not being a member of a stock exchange. He acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers. He is further an agent of the broker and carries out actual transactions for the broker. He is one who has either made an application for registration or is registered as a sub broker under SEBI Act, 1992. The members of the stock exchange who execute transactions of their clients through the members of other stock exchanges are treated as Sub Brokers. Any person who not being a member of a stock exchange, acts on behalf of a stock broker as an agent for assisting the investors in buying, selling or dealing in securities through such stock brokers is called as a sub broker. He is associated with securities market and should not buy, sell or deal in securities unless he has complied with the conditions of the certificate of registration obtained from SEBI issued in accordance with Rules
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and Regulations. If he is associated with securities market before the establishment of the SEBI, then he may continue to do business but upon an application made for registration within a period of 3 months from the establishment of SEBI, till the disposal of such application. There are certain conditions provided in Rule 5 of SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, which are to be fulfilled before the grant of a certificate to a sub-broker. If the stock broker/sub broker fails to comply with the conditions subject to which he is been granted registration, then he would be penalized and his registration would be suspended or cancelled. A sub broker should co-operate with his broker in the transactions. He should not knowingly and willfully deliver documents which constitute bad delivery. He should also co-operate with other contracting party for prompt replacement of the documents which are declared as bad delivery. Further, he should extend his full co-operation to his stock broker in protecting the interests of his clients regarding their rights to dividends, bonus rights, rights shares and any other right relatable to such securities. Further, sub brokers, who act on behalf of their principal broker, are required to issue to their clients purchase or sale notes for all the transactions entered into by them on behalf of their clients. While performing this function, the sub brokers act as an agent of the principal broker. He is also required to be registered with the concerned stock exchange. The business of the stock brokers and sub brokers is too much interlinked, so, for properly monitoring their activities separate registration procedure is provided. The sub broker owes obligations not only to the client but also to the stock broker. The sub broker enters into a tripartite agreement with the main broker and his client. He assists his clients in obtaining the contract note from the main broker. But he cannot issue the note or make payments through cheques directly, as that has to be done by the main broker. These activities of sub-broker are known as sub broking.

Need for Sub Broker

Sub brokers are also called as investment broker. The sub brokers (investment brokers) are individuals who bring together buyers and sellers of investments. They need a license to operate. They act on behalf of buyers and sellers of stock. They charge a commission on trades that they execute on such instructions from buyers and sellers.

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Sub brokers are required so the individuals who trade in the stock market can get associated with the broking firm. The retail investors with the help of sub brokers can trade easily and can also get guidance from the sub brokers. Who can be a sub broker (i) In the case of a sub-broker, an applicant would be considered for registration only if e fulfills the eligibility criteria specified by the MSE, MSEFSL,BSE, and SEBI. (ii) The sole proprietor, designated partners or designated directors also have to submit xperience certificate, indicating that they have adequate knowledge about the functioning of a stock exchange, stock broking firm or capital market. In the case of an individual trading member, minimum experience of three years is insisted upon, while n the case of partnership firm or company, each one of the designated partners or designated directors has to posses a minimum of two years experience. The trading member of MSE who can become a sub-broker of MSEFSL is also required to comply with the solvency requirement specified by MSE, which is as follows: (a) Individual: networth of Rs.4 lakh, (b) partnership firm: networth of Rs.8 lakh and (c) company: paid-up capital of Rs.20 lakh and networth to be maintained above this figure at all times. Any trading member of MSE who can become a sub-broker of MSEFSL is also required to maintain base minimum capital of atleast Rs.2 lakh in the form of cash. (iii) In the case of a client wishing to open his trading account through a subbroker of MSEFSL, introduction by the sub-broker is mandatory and the details of the introducer should be completely filled in the Client Registration Document. (iv) Where it is found that the information submitted by the sub-broker or the client is false, MSEFSL would forthwith stop the processing of the application for registration as a sub-broker or client of MSEFSL. In case the applicant has already been registered as a sub-broker by SEBI, then the regulator would be informed immediately about the same, with a request to cancel the registration and in case of a client, the transactions shall be stopped immediately.

SEBI Guidelines for Sub Broker

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S O 627 (E) in exercise of the powers conferred by section 29 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Central Government hereby makes the following rules, namely:Short title and commencement 1. (1) These rules may be called the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992. (2) They shall come into force on the date of their publication in the Official Gazette. Definitions 2. In these rules, unless the context otherwise requires (a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) "Certificate" means a certificate of registration issued by the Board; (c) "Rules" means the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992; (d) "stock exchange" means a stock exchange which is for the time being recognised by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (e) "Stock broker" means a member of a stock exchange; (f) "Sub-broker" means any person not being a member of a stock exchange who acts on behalf of a stock-broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stockbrokers; (g) "Regulations" means the Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations, 1992. Not to act as stock-broker or sub-broker without registration. 3. No stock-broker or sub-broker shall buy, sell, and deal in securities, unless he holds a certificate granted by the Board under the Regulations: Provided that such person may continue to buy, sell or deal in securities if he has made an application for such registration till the disposal of such application.
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Conditions for grant of certificate to stock-broker 4. The Board may grant a certificate to a stock-broker subject to the following conditions namely: (a) He holds the membership of any stock exchange; (b) He shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; (c) In case of any change in the status and constitution, the stock broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; (d) He shall pay the amount of fees for registration in the manner provided in the regulations; and (e) he shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received from such investors. Conditions of grant of certificate to sub-broker 5. (1) The Board may grant a certificate to a sub-broker subject to the following conditions, namely: (a) He shall pay the fees in the manner provided in the regulations; (b) He shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received; (c) In case of any change in the status and constitution, the sub- broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; and (d) He is authorised in writing by a stock-broker being a member of a stock exchange for affiliating himself in buying, selling or dealing in securities:

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Eligibility in terms of Capital Adequacy

The sub broker is an employee of the brokerage firm so there is no capital adequacy. He is salaried person and also gets commission from the transaction he performs.

Obligations:
Whenever the customer contacts the sub-broker for the transaction, the subbroker has to perform the transactions on behalf of the brokerage firm. He is basically a mediator between the brokerage firm and the client. He has to fill forms on the customers behalf and process them. Moreover, it is the responsibility of the sub-broker to send regular statements to the customer with accurate data.

Activities in terms of Dos and dont

The terms and conditions for the sub-broker are all similar to that of the broker because they come directly under the preview of SEBI. Moreover, it is also dependent on the brokerage firm as to what level of strictness has to be followed with the employees.

Corporate Brokers
The corporate brokers are individuals that are knowledgeable about the share and other financial markets. They advise companies on fund raising (e.g. new issues of shares). They try to generate interest among investors for the companies securities. They are prepared to buy and sell companies shares

They are retained by listed companies to provide strategic advice, liaise with shareholders, drum up support for transactions and generally keep them updated about the market developments. Most of the corporate brokers are unpaid. Functions of Corporate Broker The importance of networking The importance of market making The importance of sales

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The importance of research The importance of corporate advice to the board The role of the investment manager

The formal corporate brokerage agreement Typically an agreement between a broker and a trust board will be formalized in a document which sets out both the terms under which the broker will provide corporate services and financial advice and the level of remuneration for their provision. It is likely that the agreement will have a clause, which will state that the annual fee will be offset against any significant corporate fees that the trust incurs in the financial year. In addition if a brokerage charge is deducted on any buy-backs, this commission may also be offset against the annual retainer. Some brokers will expect to be reimbursed for any travel and out of pocket expenses in relation to any of the services provided to the trust. A typical agreement is likely to describe the provision of the following services: Provide a point of contact at a senior level on the corporate finance side to maintain contact with the board. Points of contact will also be provided for the board and manager who should monitor activity, on a day-to-day or regular basis, in the shares and feed back comments from shareholders. Provide advice and comments on statutory announcements including annual and interim statements and any other types of shareholder announcements and documents. Arrange meetings for the board with major shareholders if appropriate. Attend board meetings at least once a year and update directors on developments in the market in general and any points which are specific to the trust. Attend the AGM. Liaise with major shareholders if appropriate in relation to any corporate activity. Make a market in the shares. Help to market the shares to existing and potential shareholders. Provide research for publication on the trust in relation to performance, comparisons with peer groups funds, strategy and objectives. Provide a regular health check on all aspects of the trust including performance, capital structure, buy-backs (including Treasury Shares), corporate governance, composition of the board, changes to the share register, and views of shareholders, gearing, and any other developments which are likely to have an impact on the trust.
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Provide technical advice in relation to the share listings

A companys corporate broker is likely to benefit from a higher proportion of equity trading in that companys stock. Certainly, working as a broker to a company is no guarantee of future business. Indeed, several companies in the FTSE 100 operate a policy of keeping separate M&A advisers and corporate brokers, which diminishes the relative value of having that company as a client. The heads of corporate broking have said that the investment banking revenues are not the only consideration when choosing whether to pitch for business. Some companies, like Rolls-Royce or Burberry, have done little but carry considerable cachet, which has an inherent value to the banks. There are also relationships to consider. Some of the Brokers on NSE/BSE are as follows:

Sharekhan Angel Broking Motilal Oswal Securities Karvy Stock Broking

Kunvarji Finstock Pvt. Ltd SmcIndiaOnline Religare Trading Edelweiss Online stock and

Broker on NSE/BSE Marwadi Shares : "Marwadi is a Gujarat based financial service group dealing in
equities / commodities broking and portfolio management services. Products and Services: Equities & Derivatives, Commodity, Internet Trading, Depository Participant, IPO, Mutual Funds, PMS, Research, Insurance, New

Pension Scheme and Client Attention The clients approach to this broker by the way of the market research/survey conducted and also through word of mouth. Security is taken from the clients in the form of deposit from the clients since the time they open an account with them. Identification proofs from the customers is taken to verify the credentials of the person opening an account. The customer has to self attest the documents that they submit to the sub broker and it turns the broker. The broker and the sub broker jointly are involved in maintaining the relationship with the customers so that they are satisfied and do not switch
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over. They also advise their customers on regular basis so that the customers remain updated about the market trends. They also give gifts to their clients on the special occasion. They do arrange for meetings with their clients so that there grievances are addressed. Internet facilities are provided by the broker. On every transaction the broker and the sub broker gets stipulated commission. Brokers like Angel Broking also provide their customers with a software that gives the customer complete insight about the entire transaction. Brokers like Kunvarji also provide regular statements of their transactions on a weekly and monthly basis. They also actively participate on regular basis with the Non Resident Indians and maintain cordial relations so that the customers are maintained.

Bibliography
http://www.nseindia.com/ http://www.marwadionline.com/ www.bseindia.com www.sebi.gov.in www.wikipedia.com
www.sharekhan.com/ www.edelweiss.in/

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