Sub-broker Agreement: Describing Rights And Benefits

A sub-broker agreement is an important document which forges a partnership between the broking house and the sub-broker. It lists the terms and conditions between the two parties, describe rules and regulation that each must follow, and their respective rights. It states the terms that sub-brokers need to follow to maintain a high level of transparency to avoid pitfalls.

A sub-broker can’t start operating until the agreement is drawn and registration is complete with SEBI. So, in case you want to know what it states, we, in this article, has described some of the important clauses of the sub-broker agreement that you must take note of.

Meanwhile, when we are discussing what a sub-broker agreement is, you may also want to understand how to enrol yourself or the code of conduct of sub-brokers and stockbrokers.

Clauses describing sub-broker’s benefits

Sub-broker agreement is a business document outlining the rights and interests of sub-broker while entering in a partnership with a stockbroker. According to such agreement, a sub-broker is entitled to the following rights,

• It prohibits stockbrokers from indulging in anything unfair act that may cause the client to dissociate from the sub-broker
• In case of any dispute, both the parties will have to abide by the rules of the stock exchange
• If the problem can’t get solved by the officials in the stock exchange, it will get referred for arbitration
• Either party can discontinue the agreement. In case the stockbroker decides to terminate the agreement, it needs to update the exchange accordingly and clear any pending fees with the regulator
• Stockbroker can’t transact a higher amount than agreed between it and the sub-broker on behalf of the latter

Sub-broker’s code of conduct

In the Sub-broker agreement, it also describes the duty of a sub-broker towards the stockbroker, which has employed him. Since it is a business agreement, it clearly defines the code of conduct the sub-broker must follow to keep his association with the stockbroker. According to the sub-broker agreement,

• There must be a consensus between stockbroker and sub-broker regarding commission pay-out
• The document caps the maximum percentage of commission based on the value of the transaction carried out by the sub-broker
• Sub-broker must maintain detail record of all the transactions carried out by him and update stockbroker about it
• The agreement prevents sub-brokers from material modification on its status or changing the constitution without the consent of the stockbroker. It is an important clause that sub-brokers need to acknowledge to get approval from SEBI
• Sub-brokers can carry out security dealing only on behalf of the broking house
• Sub-broker will require stockbroker’s approval to issue any document including, bills, confirmation memo, statement of funds, securities, and more
• Sub-broker will have to furnish, in demand, all bank transactions and DP statement details to stockbroker
• The agreement also approves internal control by a stockbroker. A sub-broker must allow any time scrutiny from the stockbroker on sub-broker’s records, deposits, client documents, sub-broker document, and large volume transactions carried out by him
• In case of complaints from clients, stockbroker can stop paying a commission on the deal to the sub-broker till the matter resolves
• Under the agreement, the sub-broker is required to display trading member’s display board stating guidelines for the investors including, trading member’s contact details, compliance office, mode of payment, and regulations regarding receiving delivery of securities

Terminating a sub-broker agreement

Either party can terminate the agreement without citing any reason. However, if the stockbroker terminates the agreement, it must collect the registration certificate from the sub-broker and submit it to SEBI along with pending fees and arrears. Simultaneously, the stockbroker must also inform all investors through newspaper announcement regarding dissolving the agreement.

Conclusion

The sub-broker agreement describes the benefits enjoyed by both the parties and also states the limitations of each. In terms of maintaining the credibility of the capital market, a sub-broker agreement is a critical document. It is the Magna Carta that ensure that a partnership is established between the stockbroker and sub-brokers based on integrity and transparency.

If you are interested in commencing a journey as a sub-broker, we can assist you in fulfilling your career goals. Angel One is one of the top full-fledged stock broking houses in India with more than 1 million active clients.