Sub-broking is a business model through which a broker license third-party firms to sell securities on his brokerage’s behalf. It is also called ‘front-end trading’ because brokers are selling stocks that are not available on their brokerage and using the money from those sales to buy stocks of their clients through a ‘back office’ process. With the growing demand for capital investment in the secondary market due to regulatory changes and rising trust levels among investors, there has been a surge in sub broker business over the past few years. If you want to start your own sub-broking business in India, this article will help you understand the process and outline potential challenges you might face.
How to register as a Sub-Broker Company in India
To register a sub-broking company in India, you must obtain a license from the Securities and Exchange Board of India (SEBI). SEBI has created certain rules and regulations for sub-broker companies to ensure that only genuine and registered sub-brokers can operate. The registration process is similar to that of a regular broker-dealer, with certain additional requirements and regulations. First and foremost, you will have to have an audited balance sheet and profit and loss account certified by an authorized audit firm. Additionally, you will have to submit documents, tax returns, and other records of all your business activities, as well as a financial audit report done by an independent certified accountant.
Set Up an Online Trading Platform for Your Brokerage Firm
If you set up an online trading platform, you can also use it as a trading facility for your other clients. You can allow them to trade on your platform through a dedicated sign-in and password and charge them a fixed brokerage of 10-20%. If they trade on your platform frequently, you can also offer them the option to open demat account. When setting up your online trading platform, you will have to consider various aspects such as security, the logging-in process, the performance of the trading platform, and customer support. You will also have to develop a marketing strategy to attract customers.
Legal aspects of sub-broking
As per the current regulations in India, you will have to comply with the following regulations while starting a sub-broking business:
- You will have to register your company online with the relevant authorities.
- You will have to maintain complete records of your business activities.
- You will have to submit financial documents annually to the relevant authorities.
- You must ensure that all trading activities are done only by authorized
- You must ensure that you have a valid license for conducting financial services.
- You must ensure you have deposited money as security before commencing any business.
- You must follow the prescribed laws and regulations while trading stocks and shares.
Things might get more complicated when you start your own sub-broking business. As a sub-broker, you will, under normal circumstances, be dealing with clients who are not comfortable making large transactions on the internet. Apart from being a newbie and unfamiliar with online trading and the general process, you will also have a lot at stake if your clients lose money on your advice. To make matters worse, your clients can easily contact other brokers and ask them for advice. So, it becomes essential to establish a solid reputation and build a good reputation among potential clients before offering sub-broking services.