Dalal Street is witnessing a major churn. This has nothing to do with investors but people who facilitate the ‘buy’ and ‘sell’ business of investors. The tribe of sub-brokers is making way for ‘Authorised Persons’ or APs.
Between April to September 2013, the net addition of APs was 15,465. On the other hand, as per the Securities and Exchange Board of India (Sebi) records, the regulator has approved 13,396 surrender applications of sub-brokers between April to September 2013. “Brokers find it more comfortable to deal with the system of APs. The biggest advantage is that APs are not directly under the Sebi radar,” said Pawan Dharnidharka, whose family has been into stock broking for the last three generations.
The exit of sub-brokers is likely to accelerate in the next two months as the Sebi’s next five-year block of registration is due on April 1, 2014. This means sub-brokers who desire to continue their business after March 31, 2014 are liable to pay Sebi a renewal fee of Rs 5,000 for the block of five financial years commencing from April 1, 2014.
The market regulator figures indicate that sub-brokers are increasingly surrendering their registration and getting new registration as APs on the exchanges. Sebi vide circular dated November 6, 2009 introduced the concept of the ‘authorised person’ facilitating registered stock brokers of stock exchanges to provide access to clients through these APs.
The role of the AP is akin to the role of sub broker like assisting the investors in buying, selling or dealing in securities through stock-brokers. The AP is required to be approved only by stock exchange and does not require registration with Sebi.
There were nearly 84,000 sub-brokers in 2009. This number dwindled to 77,000 by 2012 and to 57,000 by September 2013. The number of APs at the end of September was at 1,40,738 compared to 1,25,273 as on March 31. A choice has to be made on becoming AP or sub-broker and having both concurrently for same segment is not permitted. Any person (individual, partnership firm, LLP or body corporate) subject to the eligibility criteria specified by the Sebi can be appointed by a stock broker as an AP.
According to an NSE member, an individual will have to take separate AP registration for each segment of the market. This means an individual can hold different separate AP license for cash, futures and currency markets on the main exchanges — NSE, BSE and MCX-SX.
“While Sebi has claimed more APs have entered the market, it’s to be seen how many have really entered the equity segment, especially the cash market. Why should more APs come to the cash market when retail investors are staying away?” he said.
Sebi rules say that a stock broker can appoint one or more APs after obtaining specific prior approval from the stock exchange concerned for each such person. The approval as well as the appointment will be for specific segment of the exchange. “Sub-brokers need Sebi registration. This means they can be inspected by the regulator directly. Sebi registration process may take up to two months. It’s faster in the case of AP registration with the exchanges,” Dharnidharka said.
Sebi also clearly states that the stockbroker will be responsible for all acts of omission and commission of the AP. He should have the necessary infrastructure such as adequate office space, the necessary equipment and manpower to effectively discharge the activities on behalf of the stock broker. If any trading terminal is provided by the stockbroker to an authorised person, the place where such a trading terminal is located would be treated as the branch office of the stockbroker.
The Authorised Person will receive his remuneration — fees, charges, commission, salary for his services — only from the stockbroker and he can’t not charge any amount from the clients. Retail and cash markets may be down, but APs are not complaining. They have currency and index/futures markets to bank on.