Brokers To Be Responsible For Sub-Brokers Trades

Securities watchdog extends deadline for registration to July 1

Brokers will have to undertake complete responsibility for settlement of trades with sub-brokers under the norms finalised by the Securities and Exchange Board of India (Sebi) for registration of sub-brokers.

The regulator has issued details to the major bourses of the nature, responsibility and regulation of the sub-broking community by the members. A copy of the final modalities was issued late last evening, sources said.

According to the modalities, the broker will also be responsible for sorting out pending investor-grievance cases and disputes of the sub-broker with his clients. Periodical inspection of the sub-brokers accounts and premises will also have to be undertaken.

 

This brings into effect a clear different tier where the option of dealing with a registered or unregistered sub-broker will be given to the broker.

The National Stock Exchange (NSE) has, however, adopted a strong stance on the sub-broker registration issue, stating that if a broker-dealer continues to trade through an unregistered sub-broker, no insurance cover be provided to him. A top NSE official said, If a broker is undecided on dealing with a sub-broker, (then) till that time he should deal directly with his clients.

Further, freedom has been given to the broker to decide on the deposit which would be charged by him from the sub-broker. Sources explained: It is a commercial credit risk, which the broker could decide for himself.

Flexibility will also be accorded to the sub-broker, in the sense that while consolidated contract notes will be provided to him, he could deconsolidate them later and issue them to his clients. This would bear the details of the transaction, the contract number and date. The note would also state the separate brokerage charged by the broker and the sub-broker.

The National Stock Exchange has already received about 30 to 40 inquiries from its dealers on the issue. The exchange will introduce an internal circular which will recognise the sub-broker entity, while making changes in the definition of authorised person.

The deadline for sub-brokers to be registered with Sebi has been extended to July 1, with all transfer deeds where the rubber stamp on the reverse is not of registered sub-brokers, to be declared as bad delivery.

As the July 1 deadline approaches, it is still not clear how brokers at the major bourses will move towards this objective, with the Bombay Stock Exchange keen on the introduction of a remesier agent to the broker at the markets, and the National Stock Exchange set to make necessary changes to recognise the sub-broker entity. According to the regulator, the broker can also no longer make out a case of merely knowing his clients and not the sub-broker.