The relevance of Brokers and Sub Brokers Indian Capital Market

What role do brokers and sub brokers play in your investment journey? Brokers are typically the market intermediaries. A Stock broker is a SEBI registered member of a stock exchange who is authorized to execute buy and sell transactions on behalf of the client and also to clear the trades of the members. Clearing and settlement is the key role that ensures that securities and cash change hands appropriately. Typically brokers operate through own branches, online trade platforms and through sub brokers. A sub broker is also registered with SEBI along with a distinct sub broker code. But, unlike the broker, the sub broker is not directly a member of the stock exchange. Instead, the sub broker is attached to a principal broker who is a member of the stock exchange.

Sub brokers are typically specialized in small areas or towns where they bring a lot of local expertise and familiarity with the client. The advantage for the broker is that they can get market share in small areas without having to set up branches in these places and managing them. In return for the service provided, the broker shares a part of the commission on the trades brought in by the sub-broker on a pre-arranged basis. It needs to be remembered that when you place trades with a sub broker, the risk management is still done by the principal broker and the trades are also cleared by the principal broker. In fact, the broker is answerable to the exchange for all the trades put through by the sub broker network too. Let us now look at the major role that the broker and sub broker play in the stock markets.

Provides a platform for buying and selling of stocks

This is provided by the broker and the sub broker facilitates this by connecting to the broker system. This is the primary function of a broker. Brokers act as an intermediary (facilitators) for their clients to transact on a stock exchange. When you put buy and sell orders on the stock exchange, they go with the broker code. Things have become a lot simpler with the advent of online broking as the internet does all these things. With the onset of on-line trading facilities investors could directly execute trades on the trading platform offered by the brokerage house.

Broker provides clearing and settlement facility to clients

When you trade, you see an elegant screen in front of you. There is a long process that goes on after that. Pay-ins have to be decided and the broker has to pay to the exchange. The demat debits have to be confirmed to the exchange. The actual exchange settlement has to be done. Finally, the people who sold shares must get the credit in the bank account and those who bought shares must get the credit of shares into their demat account. This entire clearing and settlement activity is coordinated by the broker in the back end.


Value added services like research and advice

Most of the full service broking houses have set up in-house research team that scan companies and stocks and also take a view on the macro-economic scenario that impacts the stock market. The broker gives a variety of research support to the customer in the form of trading calls, technical calls, short term trading reports, investment ideas, long term investment portfolio etc. Brokers also have technical analysts who would provide market trends and intra-day trading tips. They send out news and other alerts on a continuous basis and such alerts are sent through email and through SMS push services. Brokers also regularly conduct investor education programmes to help improve their clients’ knowledge about investing, especially about more complex products like futures and options.

Brokers provide network and sub brokers provide the reach

This is a very important contribution from brokers from the standpoint of individual investors and also from the point of the markets. With a large network of sub brokers, the brokers are able to reach to even small places and spread the equity cult in these places. Small investors in distant towns also get a chance to participate in the equity markets and create wealth in the long run by using this outreach method. With the advent of the internet, most brokers are able to serve a much larger pan-Indian audience with the power of the internet.

Most brokers also provide the margin financing facility

Stock brokers are well capitalised these days, thanks to better flow of funds and IPOs in the last few years. This has given them a strong balance sheet with high equity and debt on books and this enables them to provide margin finance both for IPOs and for secondary market transactions. Of course, stock exchanges monitor the extent to which brokers are lending in line with their net worth. Many large broking houses provide financing facilities to clients who are looking to take leverage positions through their NBFC arms.

Help you with your overall financial plan

Today the role of brokers has transformed from being merely giving execution to providing research, advisory and personal financial planning. Today brokers are starting out with the end in view. They start off with the goals of the customer and then work backwards in such a way that eventually equity becomes a part of the overall picture. This is the more scientific approach and Indian brokers and sub brokers are playing a big part in that. They also give the customers a one stop access to a variety of other financial products like IPOs, ETFs, mutual funds, bonds, RBI bonds, insurance products etc. To know more about stock brokers click here.

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