The Indian stock market has evolved over the years, offering numerous opportunities for individuals to participate in the financial system beyond just investing. Two popular roles for individuals who want to collaborate with stockbrokers and earn a revenue share are becoming an Authorized Person (AP) or a Sub Broker. While these terms are often used interchangeably, there are crucial distinctions between the two. In this article, we will explore these differences, the roles and responsibilities of each, and how one can become a sub broker or authorized partner in the stock market.

What is a Sub Broker?

A Sub Broker is an intermediary between the client and the stockbroker. They do not deal directly on the stock exchange but help clients execute trades through the stockbroker they are affiliated with. Traditionally, sub brokers provided services such as client onboarding, handling queries, and helping clients with documentation and investment decisions.

Sub brokers typically earn a commission, known as sub broker commission, which is a percentage of the brokerage commission generated by the trades of their clients. This commission structure has made the role attractive, especially as the Indian stock market continues to grow. However, due to regulatory changes introduced by the Securities and Exchange Board of India (SEBI), the concept of sub brokers has been largely replaced by the role of the Authorized Person.

What is an Authorized Person?

An Authorized Person (AP) is an individual or entity appointed by a stockbroker to act as an intermediary, much like a sub broker. However, an Authorized Person is a registered entity that can deal directly with the stock exchange. The introduction of this role by SEBI was aimed at improving regulatory oversight, transparency, and ensuring higher standards of service in the stock market.

Authorized persons operate on behalf of their stockbroker and assist clients with trading, investing, and other financial services. Just like sub brokers, they earn a commission based on the revenue generated by client transactions, commonly referred to as revenue sharing. However, APs must adhere to SEBI guidelines, ensuring they maintain integrity and professionalism in their dealings.

Key Differences Between Sub Brokers and Authorized Persons

1. Regulatory Framework
   The biggest difference between sub brokers and authorized persons is the regulatory oversight. Sub brokers were intermediaries that operated under the stockbroker’s license without direct regulatory scrutiny from SEBI. On the other hand, Authorized Persons are required to register with SEBI and are directly accountable to both SEBI and the stockbroker.
2. Client Interaction
   Both sub brokers and authorized persons interact with clients, assisting them with account opening, order execution, and other investment services. However, since the introduction of Authorized Persons, SEBI has mandated a more streamlined and regulated process for client interaction and protection.
3. Revenue Sharing
   For sub brokers, the sub broker commission was traditionally the primary way to earn income. This commission was a percentage of the brokerage generated by the clients. For Authorized Persons, the structure is similar, but the revenue sharing model may offer more transparency and stability due to regulatory oversight.
4. Business Scale and Operations
   Sub brokers operated more independently, sometimes building larger client bases. However, they were restricted to certain functions. Authorized Persons, by contrast, can operate at a much larger scale, directly executing trades on behalf of clients under the stockbroker’s system.
5. Transition in Role
   After SEBI’s reforms, many sub brokers transitioned to becoming Authorized Persons, ensuring that they could continue their business under the new regulatory framework. This shift has largely blurred the lines between the two, though sub brokers still exist in certain smaller markets or under older frameworks.

How to Become a Sub Broker or Authorized Person?

If you are interested in entering the stock market as an intermediary, you can either become sub broker or an authorized partner. However, given the changing regulatory landscape, it is advisable to become an Authorized Person.

To become sub broker, you would need to partner with a registered stockbroker and fulfill the documentation and qualifications required by the stock exchange. However, with SEBI’s new regulations, it’s often easier and more profitable to become an Authorized Person.

To become an Authorized Person, you need to:

1. Partner with a registered stockbroker.
2. Register with the stock exchange through the stockbroker.
3. Fulfill SEBI’s eligibility requirements, which include educational qualifications and a clean financial record.
4. Pay the necessary registration fees and submit required documentation.

Sub Broker and Authorized Person Commission Structure

Both sub brokers and authorized persons earn their income through a commission model. The sub broker commission is generally a percentage of the brokerage commission earned by the stockbroker on the trades placed by clients. This model ensures that sub brokers and authorized persons have a vested interest in increasing client trading volumes.

Revenue sharing percentages can vary widely based on the agreement with the stockbroker, but sub brokers and authorized persons typically earn between 50-70% of the brokerage commissions.

Stock trading platforms such as mStock by Mirae Asset, Zerodha, Groww, and Upstox offer robust sub-broker and authorized person programs. These platforms allow intermediaries to leverage their technological platforms, research tools, and market expertise, ensuring that clients receive the best possible service. Moreover, competitive brokerage fees on platforms like mStock make it easier for intermediaries to attract and retain clients, ultimately increasing their potential revenue share.

Conclusion

While the roles of sub brokers and authorized persons are similar, regulatory changes have made the latter a more popular and streamlined choice in India’s stock market. Whether you want to become a sub broker or an authorized partner, the opportunities for revenue generation through sub broker commission and revenue sharing are lucrative. With growing online trading platforms, there’s never been a better time to get involved in India’s thriving financial markets.

By understanding the roles, responsibilities, and earning potential, you can make an informed decision about the path that’s right for you in the stock market.