Registration, role & functions of Stock brokers and sub-brokers are governed by SEBI (STOCK BROKERS AND SUB-BROKERS) RULES, 1992. The aforesaid regulations defines respectively that

• "stock broker" means a member of a stock exchange;

• "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 stock-brokers;

No stock-broker or sub-broker shall buy, sell, deal in securities, unless he holds a certificate granted by the Board under the regulations.

The Board may grant a certificate to a sub-broker subject to the following conditions, namely:

1. he shall pay the fees in the manner provided in the regulations;

2. 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;

3. 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

4. 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:

The eligibility criteria for registration as a sub-broker shall be as follows, namely:

1. in the case of an individual;

1. the applicant is not less than 21 years of age;

2. the applicant has not been convicted of any offence involving fraud or dishonesty;

3. the applicant has atleast passed 12th standard equivalent examination from an institution recognised by the Government;

4. the applicant is a fit and proper person".

   Provided that the Board may relax the educational qualifications on merits having regard to the applicant's experience.

5. In the case of partnership firm or a body corporate the partners or directors, as the case may be, shall comply with the requirements contained in clauses (a) to (c) of sub- regulation (i).

Obligations of Sub-Broker

1. pay the fees as prescribed

2. abide by the Code of Conduct

3. enter into an agreement with the stock broker for specifying the scope of his authority and responsibilities.

Code of Conduct for Sub-Brokers

A. GENERAL

1. Integrity :
   A sub-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all investment business.

2. Exercise Of Due Skill And Care :
   A sub-broker, shall act with due skill, care and diligence in the conduct of all investment business.

B. DUTY TO THE INVESTOR

1. Execution Of Orders :
   A sub-broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price. A sub-broker shall promptly inform his client about the execution or non-execution of an order and make payment in respect of securities sold and arrange for prompt delivery of securities purchased by clients.

2. A. Issue of Purchase or Sale Notes :

1. A sub-broker shall issue promptly to his clients purchase or sale notes for all the transactions entered into by him with his clients.

2. A sub-broker shall issue promptly to his clients scripwise split purchase or sale notes and similarly bills and receipts showing the brokerage separately in respect of all transactions in the specified form.

3. A sub-broker shall only split the contract notes client-wise and scripwise originally issued to him by the affiliated broker into different denominations.

4. A sub-broker shall not match the purchase and sale orders of his clients and each such order must invariably be routed through a member-broker of the stock exchange with whom he is affiliated.

3. BREACH OF TRUST :
   A sub-broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other information of a confidential nature of the client which he comes to know in his business relationship.

4. BUSINESS AND COMMISSION :

   1. A sub-broker shall not encourage sales or purchases of securities with the sole object of generating brokerage or commission.

   2. A sub-broker shall not furnish false or misleading quotations or give any other false or misleading advice or information to the clients with a view of inducing him to do business in particular securities and enabling himself to earn brokerage or commission thereby.

   3. A sub-broker shall not charge from his clients a commission exceeding one and one-half of one percent of the value mentioned in the respective sale or purchase notes.

5. BUSINESS OF DEFAULTING CLIENTS :
   A sub-broker shall not deal or transact business knowingly, directly or indirectly or execute an order for a client who has failed to carry out his commitments in relation to securities and is in default with another broker or sub-broker.

6. FAIRNESS TO CLIENTS :
   A sub-broker, when dealing with a client, shall disclose that he is acting as an agent and shall issue appropriate purchase/sale note ensuring at the same time, that no conflict of interest arises between him and the client. In the event of a conflict of interest, he shall inform the client accordingly and shall not seek to gain a direct or indirect personal advantage from the situation and shall not consider clients' interest inferior to his own.

7. INVESTMENT ADVICE :
   A sub-broker shall not make a recommendation to any client who might be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable grounds for believing that the recommendation is suitable for such a client upon the basis of the facts, if disclosed by such a client as to his own security holdings, financial situation and objectives of such investment. The sub-broker should seek such information from clients, wherever they feel it is appropriate to do so.

7. A - Investment Advice in publicly accessible media -

   1. A sub-broker or any of his employees shall not render, directly and indirectly any investment advice about any security in the publicly accessible media, whether real - time or non real-time, unless a disclosure of his interest including his long or short position in the said security has been made, while rendering such advice.

   2. In case, an employee of the sub-broker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.

8. COMPETENCE OF SUB-BROKER :
   A sub-broker should have adequately trained staff and arrangements to render fair, prompt and competent services to his clients and continuous compliance with the regulatory system.

C. SUB-BROKERS VIS-A-VIS STOCK BROKERS

1. CONDUCT OF DEALINGS :
   A sub-broker shall co-operate with his broker in comparing unmatched transactions. A sub-broker shall not knowingly and wilfully deliver documents which constitute bad delivery. A sub-broker shall co-operate with other contracting party for prompt replacement of documents which are declared as bad delivery.

2. PROTECTION OF CLIENTS INTERESTS :
   A sub-broker shall extend fullest co-operation to his stock-broker in protecting the interests of their clients regarding their rights to dividends, right or bonus shares or any other rights relatable to such securities.

3. TRANSACTIONS WITH BROKERS :
   A sub-broker shall not fail to carry out his stockbroking transactions with his broker nor shall he fail to meet his business liabilities or show negligence in completing the settlement of transactions with them.

4. LEGAL AGREEMENT BETWEEN BROKERS :
   A sub-broker shall execute an agreement or contract with his affiliating brokers which would clearly specify the rights and obligations of the sub-broker and the principal broker.

5. ADVERTISEMENT AND PUBLICITY :
   A sub-broker shall not advertise his business publicly unless permitted by the stock exchange.

6. INDUCEMENT OF CLIENTS : A sub-broker shall not resort to unfair means of inducing clients from other brokers.

D. SUB-BROKERS VIS-A-VIS REGULATORY AUTHORITIES

1. GENERAL CONDUCT :
   A sub-broker shall not indulge in dishonourable, disgraceful or disorderly or improper conduct on the stock exchange nor shall he wilfully obstruct the business of the stock exchange. He shall comply with the rules, bye-laws and regulations of the stock exchange.

2. FAILURE TO GIVE INFORMATION :
   A sub-broker shall not neglect or fail or refuse to submit to the Board or the stock exchange with which he is registered, such books, special returns, correspondence, documents, and papers or any part thereof as may be required.

3. FALSE OR MISLEADING RETURNS :
   A sub-broker shall not neglect or fail or refuse to submit the required returns and not make any false or misleading statement on any returns required to be submitted to the Board or the stock exchanges.

4. MANIPULATION :
   A sub-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.

5. MALPRACTICES :
   A sub-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the public interest or which leads to interference with the fair and smooth functions of the market mechanism of the stock exchanges. A sub-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.

REGISTRATION OF TRADING AND CLEARING MEMBERS

Clearing member' means a member of a clearing corporation or clearing house of the derivatives exchange or derivatives segment of an exchange, who may clear and settle transactions in securities. Clearing corporation or clearing house' means the clearing corporation or clearing house of a recognised stock exchange to clear and settle trades in securities.

Trading member' means a member of the derivatives exchange or derivatives segment of a stock exchange and who settles the trade in the clearing corporation or clearing house through a clearing member

An application for grant of certificate of registration by a trading member of a derivatives exchange or derivatives segment of a stock exchange shall be made through the concerned derivatives exchange or derivative segment of a stock exchange of which he is a member

An application for grant of certificate of registration by a clearing member 8*[or self clearing member] of the clearing corporation or clearing house of a derivatives exchange or derivatives segment of a stock exchange, shall be made through the concerned clearing corporation or clearing house of which he is a member.

Eligibility Criteria

The Board shall take into account for considering the grant of a certificate all matters relating to dealing and settlement in derivatives and in particular the following, namely, whether the applicant -

1. is eligible to be admitted as a trading member of a derivative exchange and / or a clearing member of a derivatives exchange or derivatives segment of a stock exchange or clearing corporation or house;

2. has the necessary infrastructure like adequate office place, equipments and manpower to effectively undertake his activities;

3. is subjected to disciplinary proceedings under the rules, regulations and bye-laws of any stock exchange with respect to his business as a stock broker or member of derivatives exchange or segment or member of clearing house or corporation involving either himself or any of his partners, directors or employees.

4. has any financial liability which is due and payable to the Board under these regulations

(2) An applicant who desires to act as a trading member, in addition to complying with the requirements of sub-regulation (1), shall have a net-worth as may be specified by the derivative exchange or segment from time to time and the approved user and sales personnel of the trading member have passed a certification programme approved by the Board;

An applicant who desires to act as a clearing member, in addition to complying with the requirements of sub-regulation (1), shall have a minimum net worth of Rs. 300 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with the clearing corporation or clearing house of the derivatives exchange or derivatives segment in the form specified from time to time.

(4) An applicant who desires to act as a clearing member, in addition to complying with the requirements of sub-regulation (1), shall have a minimum net worth of Rs.100 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with the clearing corporation or clearing house of the derivatives exchange or derivatives segment in the form specified from time to time.

Explanation: For the purpose of sub-regulations (2), (3) and (4) the expression `net worth' shall mean paid up capital and free reserves and other securities approved by the Board from time to time (but does not include fixed assets, pledged securities, value of member's card, non-allowable securities (unlisted securities), bad deliveries, doubtful debts and advances (debts or advances overdue for more than three months or debts or advances given to the associate persons of the member), prepaid expenses, losses, intangible assets and 30% value of marketable securities).

1. The code of conduct specified for the stock brokers shall be applicable mutatis mutandis to the trading member, clearing member and such members shall at all times abide by the same

2. The trading member and clearing member shall abide by the code of conduct as specified in the rules, bye-laws and regulations of the derivatives exchange or derivatives segment of the exchange.

3. The trading members shall obtain details of the prospective clients in `Know Your Client' format as specified by the Board before executing an order on behalf of such client.

4. The trading member shall mandatorily furnish `Risk Disclosure Document' disclosing the risk inherent in trading in derivatives to the prospective clients in the form specified by the derivatives exchange or derivatives segment.

5. The trading or clearing member shall deposit margin or any other deposit and shall maintain position or exposure limit as specified by the Board or the concerned exchange or segment or clearing corporation or clearing house from time to time.

6. The provisions of sub regulations (1) to (5) shall be applicable mutatis mutandis to a self clearing member