Authorized persons are vital to 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 personalized trading solutions to each of them. But, can they trade for themselves? It is a common question, asked by our authorized agents and clients alike. But before we answer the question, let us look at some of the other aspects of an authorized person’s business.
Authorized persons work under broking houses as a part of their extended authorized person network. They are the registered personnel authorized 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 authorized person is a franchise model, which requires the authorized person to make a hefty initial investment in procuring the authorized person status with the stockbroker. They also need to invest in renting office space and infrastructure necessary to run the business.
Authorized persons are required to enroll themselves with SEBI to be able to perform buying, selling, and dealing with securities activities if you want to update yourself on authorized person’s enrolment policy checkout, A Complete Guide to Enrol an Authorised person.
Now, to complete the registration process, you would need to pay some fees to the regulator and obtain a membership number. But all these efforts are invested in building a business line that will only earn you a commission. So, a question arises, under what circumstances, can an authorized person trade for himself?
An authorized person can trade for himself, but with some restrictions. The authorized person 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 an authorized person trade for himself?
Authorized persons 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 benefits 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 expertise and access to different asset classes, he may feel more in control in diversifying the portfolio and need not seek the service of another stockbroker
All these advantages that an authorized person enjoys while trading for himself also raise a series of concerns. As a result, an authorized person’s trading account is often subject to intense scrutiny to prevent any inappropriateness.
The laws might not prevent authorized persons from trading for themselves, but it often leads to a clash of interests. 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 fulfill the responsibilities towards the stockbroker and his clients, which will impact the overall business.
Conclusion
Authorized persons (Formerly known as a Sub Broker) are essential players in the market. If the authorized person wants to trade for himself, he can do it after making sure that he does not fail in his commitment towards the stockbroker and his clients.
If you want to become an authorized person, we can assist you in your career journey. Take the next step towards your future with Angel One – the number one stock broking house with three decades of proven track record.
