Stock Broker License Registration
A Stock Broker License is a registered professional who acts as an agent on behalf of their clients and investors to purchase or sell shares or stocks in the secondary market. Stock Brokers have authorized a person who as a result of registration with the authorities has the right to perform such functions. No unregistered person can perform such functions.
A stockbroker is required to have the following qualities:
- Awareness of the market and conditions influencing the stock prices.
- Financial expertise and foresight to make a judgment call for their clients.
They provide these services and are paid through brokerage either for every transaction or for total trade value.
Application for Recognition as Stock Broker
Depends upon case to case basis
- Purchase of Plan
- Expert Assigned
- Share the details as requested
- Recognition as Stock Broker
- Copy of relevant clause of MOA duly certified by the Stock Exchange
- Certificate from the qualified Chartered Accountant certifying the networth and paid up capital
- Undertaking by applicant that they had not introduced through any member broker/ sub-broker of the Exchange any fake/ forged/ stolen shares in the Exchange/ market. If yes, details thereof including action taken, if any, by the applicant
Stock Broker License As per Securities Contracts (Regulations) Rules, 1957, a stockbroker is a person having trading rights in any of the recognised stock exchange and includes a trading member.
Who is a Stock Broker?
A broker is officiated post their registration with a recognised stock exchange such as Bombay Stock Exchange or by working for a brokerage firm. Such brokers levy a charge in the form of commission, fee, or mark-up. This charge widely varies from broker to broker. Some dealers charge a flat fee, whereas some levy a percentage of the securities value traded.
The share market brokers’ foray is dominated by discount brokers. This set of brokers has mustered widespread popularity because of their low charges which make the security market more accessible to laymen. A key distinction between a discount broker and regular stockbroker is that the latter is required to have a profuse knowledge of the market and has to go through arduous examination routines while these parameters are not compulsory for a discount broker.
What is the History of Stock Brokerage?
Share broker as an institutionalised profession dates back to 2nd Century BC, Rome. However, post the collapse of the Roman Empire, such professions remained obsolete until the European Renaissance. It was a small-scale practice with sparse and sporadic trading of government bonds in a few Italian cities such as Venice and Genoa.
However, company stocks were not formally traded until 1602, when Dutch East India Company released the first publicly traded stocks through the Amsterdam Stock Exchange. Owing to the law of private property rights indoctrinated in the Dutch Empire, the profession of the stock broker’sflourished.
At the end of the 17th Century, the London Stock Exchange came into existence, and almost a hundred years later, in 1792, the New York Stock Exchange was formed. India and Asia saw its first stock exchange in the name of Bombay Stock Exchange in 1875.
What are the pre-considerations to register as Stock Broker?
Stock Broker License In order to be able to register as a Stock Broker, the applicant is required to submit an application. On receiving such application the board shall take the following into consideration:
- The applicant must be eligible to become a member of any stock exchange.
- In order to effectively perform its activities as a Stock Broker License, the applicant must have required infrastructure including adequate office, equipment, and manpower.
- The applicant must also not be new to the business; it must have some relevant experience in trading of securities.
- The applicant or any of its partners, directors or employees are or were subject to any disciplinary proceedings under the relevant laws.
- If the applicant is considered fit and proper as per the specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008
- If it has any financial liability under SEBI Act, Securities Contracts (Regulation) Act, 1956 or any other relevant rules or regulations.
- If the certification under SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007 or as may be specified regulation is taken or not.
- Net worth and deposit requirements specified in Schedule VI are fulfilled by the applicant.
- The applicant must satisfy all the eligibility criteria mentioned under Rule 8 of Securities Contracts (Regulations) Rules, 1957. This rule specifies the constitution types eligible to apply, minimum director requirement, work experience conditions, etc.
What are the Registration Requirements?
As we have discussed, in order to operate as a Stock Broker License one is required to obtain registration under SEBI.
However the person is already admitted as a member in one stock exchange, then no separate registration is required under SEBI to operate in more than one stock exchange. But, for this purpose, they are required to ask for approval from such other stock exchanges.
Applicant while submitting the application shall submit the fees as mentioned in the Schedule III of the regulations. However, the Board can grant an extension of 6 months from the date the fees becomes due after sufficient cause is being shown justifying the same.
What will be the Procedure for Registration?
Stock Broker Registration procedure includes the following steps:
Step1: A duly filled application in Form A provided in Schedule I am required to be submitted to the Stock Exchange where it wishes to be admitted as a member.
Step2: Within 30 days of receiving the application the stock exchange is required to forward the same to the Securities Exchange Board of India.
Step3: After due analysis of the application if the Board is of the opinion that all the conditions mentioned under Regulation 5 are satisfied, the certificate of registration is issued and the stock exchange is intimated of the same effect.
Step4: If the Board is not satisfied with the contents of the application when such refusal is to be communicated to the applicant and to the stock exchange as well within 30 days from the date of refusal. However, the applicant must be provided an opportunity of being heard.
Step5: Any applicant with the rejected application has an option to reapply within 30 days from the date of intimation of such rejection, which will be considered by the Board and decision will be communicated.
What will be the Post Registration Requirements?
- The Stock Broker has acquired Stock Exchange trader membership.
- All the applicable rules, regulation and bye-laws of the respective stock exchange must be adhered to.
- If there is any change in control or management, the stockbroker must communicate the same to the Board.
- All the applicable fees must be paid.
- All the investor grievances must be addressed to within 1 month from the date of their receipt. And the Board must be communicated to as per requirement.
- Code of Conduct as specified in Schedule II of the Regulations must be abided by the stockbroker.
- Net Worth requirement must always be maintained as per Schedule VI of the regulations.
What are the Different Types of Share Market Brokers?
Traditional or Full Time Brokers
This kind of brokers provides a vast assortment of products and services to its customers. These services involve securities’ trading, investment advice, retirement planning, management of investment portfolio, taxes on capital gains, etc. Full-time stockbrokers charge a hefty commission, however, given the range of their services, such cost might justify.
As was earlier mentioned, such brokers go through rigorous training and examinations to attain the job and thus have in-depth knowledge regarding the stock market. Therefore, they are adequately trained to make a bid on your behalf and steer your portfolio to its maximum earning potential and minimise risks on it.
Discount or online stock brokers dominate the band of brokers. Along with their inexpensive nature, they also offer convenience to the laymen in terms of time and place utility. Market participants do not need to personally meet discount brokers and carry out their investment through the internet.
Investors with minimal disposable income can also start investing in the stock market through discount brokers. However, not all discount brokers offer the same level of expertise as a traditional broker and thus are a less profitable option for companies and individuals who can afford hefty investment corpus and costs.
The following table illustrates the distinguishing features of the above-mentioned types of brokers-
Traditional Share Broker
Kind of brokerage and range of fees
These brokers levy a percentage of securities’ value traded as commission. In India, such percentage varies from 0.25% – 0.75%.
Discount brokers usually ask for a flat fee against each transaction. Online brokerage is within the range of Rs. 10 – 20.
Ideal for investors, who require personalised services, is a regular and committed market participant and has a large volume of investments.
Is suited to individuals who are not regular in their investments, are new to the market or are unable to afford the high charges imposed by full-time brokers.
Some of its primary services include brokerage services, portfolio management, financial advisory, depository services, Mutual Funds services, and retirement planning.
Some basic services such as brokerage, Mutual Funds services, and passive portfolio management.
There are two other subtypes of stockbrokers who operate in the stock market. These are:
These are independent brokers who trade in securities for their own sake and not on behalf of other investors. They are not licensed to trade in someone else’s name and cannot levy commission from others. They quote two prices on stocks, one of which is the buy price quote and the other is the sale price quote. The gap between these two prices is their profit margin.
This subset of stockbrokers is known to purchase securities from one stock exchange at a lower price and then sell the same at a higher price in a different stock exchange.
Qualifications of a Stock Broker
A stockbroker must pass the Financial Industry Regulatory Authority's General Securities Representative Exam (FINRA). A person must be funded by a FINRA member firm or a Self-Regulatory Organization (SRO).
If a stockbroker wishes to work with an institutional client, he or she must have a bachelor's degree in the stream of finance or business administration. It is also preferable to have knowledge of accounting processes, financial forecasting, and planning, as well as relevant rules and regulations.
A stockbroker can begin working for a brokerage business in any function, even as a college intern, and obtain on-the-job experience. To be a stockbroker, however, he or she must have a good awareness of accounting standards and financial market rules.