5.1 Role of brokers & sub-brokers in trading


We know that a broker is a member of a recognised stock exchange who is permitted to trade through the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with the Securities & Exchange Board of India (SEBI). The advent of internet- based online trading has reduced the dependence of brokers to a large extent. Who is a sub-broker? A subbroker is a person who is registered with SEBI and is a member of a recognised stock exchange.

Every broker/sub-broker is required to be registered with SEBI and has to hold separate registration for every stock exchange. A broker’s registration number begins with the letters ‘INB’ and that of a sub-broker with the letters ‘INS’. For the brokers of the derivatives’ segment, the registration number begins with the letters ‘INF’. In case of any doubt one can confirm from the respective stock exchanges or SEBI. So make sure that your broker is a registered member.

Before the trading session actually commences, the members of the stock exchange collect orders from their clients, which can be from individuals, banks and other institutional investors. The orders may even be from farflung places or other stock markets and are communicated personally or over the telephone or the internet. Nowadays, with the introduction of the online trading systems, investors can directly log on to their online trading account and do the trading themselves.

Becoming A Member

The Securities Contracts (Regulation) Act has imposed restrictions for becoming a member (broker) of a stock exchange. He / she should be an Indian above 21 years. Involvement in an offence of fraud or dishonesty will be a disqualification. He or she should not be a member of any other association in India dealing in securities, or be a director, partner or an employee of any company whose principal business is dealing in securities. The stock exchange membership is also open to corporate bodies and
financial institutions.

To become a member an individual must have at least two years experience in the stock market either as an apprentice or a partner or an authorised assistant or a clerk. Members of a stock exchange are popularly called brokers.

A stock exchange provides a trading platform for traders through their members. As these stock exchanges reach out to all the parts of the country through brokers, subbrokers and online trading, the seller may not be aware of who is the buyer and vice-versa. Irrespective of the nature of the buyer and the seller, the exchange ensures the transaction and settles trading with responsibility.

  1. Before entering into a contract with the broker, ensure that he is registered with SEBI.
  2. Satisfy yourself about the credentials of the broker by asking for information and documents supporting his/ her claims.
  3. Keep documentary proof of having deposited money or securities with the broker.
  4. Before activating your trading account, obtain a clear idea from your broker about the brokerage, commissions, fees and other charges which will be levied on your trades.
  5. Furnish details in full as are required by the broker and as required in ‘know your client’ (KYC) norms.
  6. Ensure that a contract note is issued by the broker which contains complete records of every transaction carried out within 24 hours of the execution of the contract.
  7. In case the pay-out of money and /or security is not received on the next working day after the date of payout, follow up with the concerned broker for its release. If it is not released within five working days, lodge a complaint with the Investors’ Grievance Cell of the exchange.
  8. Ensure the receipt of a complete statement of accounts for both funds and securities settlement every quarter.

In order to start trading in the stock market, you need to have a trading account (a trading account at a brokerage firm allows you to buy and sell a full range of securities available in the open market) as well as demat account. Earlier all the share transactions were in the form of physical share certificates. Now they are transacted in electronic forms. You have to approach the Depository Participants (DPs) (remember, they are like bank branches) to open your demat account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions or you can access them online at any time.

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Investment in securities market are subject to market risks.Read all the related documents carefully before investing.
Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.