Can a Sub-broker Trade For Himself?

Sub-brokers are vital for the capital market. They operate both on behalf of the stockbrokers and clients to facilitate share trading and building business book for the broking house. They help their clients to find the best investment opportunities and extend personalised trading solutions to each of them. But, can they trade for themselves? It is a common question, asked by our sub-broking agents and clients alike. But before we answer the question, let’s look at some of the other aspects of a sub-broker’s business.

Sub-brokers work under broking houses as a part of their extended sub-broker network. They are the registered personnel authorised to offer share trading services to any investor interested in investing in the stock market. Often the business model that exists between the stockbroker and the sub-broker is a franchise model, which requires the sub-broker to make a hefty initial investment in procuring the sub-broker status with the stockbroker. They also need to invest in renting office space and infrastructure necessary to run the business.

Sub-brokers are required to enrol themselves with SEBI to be able to perform buying, selling, and dealing with securities activities. If you want to update yourself on sub-broker’s enroling policy checkout, A Complete Guide to Enrol a Sub-broker.

Now, to complete the registration process, you’d need to pay some fees to the regulator and obtain membership number. But all these efforts are invested in building a business line that will only earn you a commission. So, a question obviously arises that, under what circumstances, can a sub-broker trade for himself?

A sub-broker can trade for himself, but with some restrictions. The sub-broker can use the same credentials that he has obtained as a registered member of SEBI.  But his account will be subjected to extensive monitoring.

Can a sub-broker trade for himself?

Sub-brokers can buy and sell assets posing as a client. And, when they trade for themselves, they enjoy certain advantages over other investors, such as

• He may enjoy the advantages of being an insider of the trade. Since he can access the research reports of the stockbroker and receive market news first-hand, he can use those for better profitability
• He can use advisory services, recommendations, and tips to position himself ahead of other investors
• He can earn a commission in addition to the profit from investment
• He can leverage his knowledge of the latest tools and techniques in finding better investment opportunities
• With his knowledge and access to different asset classes, he may feel more in control in diversifying the portfolio and need not seek service of another stockbroker

All these advantages that a sub-broker enjoys while trading for himself also raise a series of concerns. As a result, a sub-broker’s trading account is often subject to intense scrutiny to prevent any inappropriateness.

The laws might not prevent sub-brokers from trading for themselves, but it often leads to a clash of interest. When they trade for themselves, they become profit-oriented and give less attention to the stockbroking business. It becomes more of an ethical concern than technical. Under such circumstances, he might fail to fulfil the responsibilities towards the stockbroker and his clients, which will impact the overall business.

Conclusion

Sub-brokers are important players in the market. If the sub-broker wants to trade for himself, he can do it after making sure that he doesn’t fail in his commitment towards stockbroker and his clients.

If you want to become a sub-broker, we can assist you in your career journey. Take the next step towards your future with Angel One – the number one sock broking house with three decades of proven track record.