In the stock market, people use third parties or middlemen known as brokers and sub-brokers. Both have important functions to keep the smooth running of trade and promote efficiency in the process of trading. However, their activities vary significantly from one another, with key differences in the services provided, regulatory status, commissions, and client interactions.In this article, we will focus on helping investors better understand the difference between broker and sub-broker, we will outline the key differences between them in terms of their services, fees, client interactions, and regulations.
Who is a Broker?
A broker is someone who is trained in finance or a firm that is licensed and registered with the regulatory bodies or SEBI (Securities and Exchange Board of India) and is capable of carrying out buy or sale orders of the clients in the market. Brokers are the middlemen who connect the investors with the stock exchanges for the execution of the trades of their clients.
Key Responsibilities of a Broker
The following are the key responsibilities of a broker.
- Execution of Trades: Brokers directly buy or sell securities on behalf of their clients in the stock market.
- Advisory Services: Through advisory, brokers give clients access to information, recommendations, or services concerning investments including portfolio management and market research to help the client make informed decisions regarding investments.
- Compliance with Regulations: Brokers must strictly observe the rules and regulations established by the regulatory authorities, such as SEBI and Exchanges.
- Access to Trading Platforms: Brokers give clients access to trading platforms, which allows them to directly monitor the market and execute trades.
Who is a Sub-Broker?
A sub-broker is an agent or middleman who operates under the supervision of a registered broker. In many countries, licensed brokers have the authority to directly trade in stock exchanges, but this is not the case for sub-brokers. They are primarily referred to as the middle agents, who facilitate the investor and the brokers, giving consultancy and business development services to the broker.
Key Responsibilities of a Sub-Broker
The following are the key responsibilities of a sub-broker
- Client Acquisition: Sub-brokers aim to gain more clients and grow the customer base of the broker.
- Advisory Role: Sub-brokers can offer specific advice to clients before carrying out any transactions.
- Cooperation with Brokers: They place orders through the broker as they do not have access to the stock exchanges.
- Localised Client Support: Sub-brokers are likely to face their clients in many geographies but in a few countries-perhaps, in several markets.
Broker v/s Sub- Broker
The following are the differences between broker and sub-broker.
| Aspect | Broker | Sub – broker |
| Scope of Services | They provide an extensive array of services, such as buying and selling, guidance on investments, managing investment portfolios, issuing research reports, and entry into different markets such as stocks, options, and commodities. Numerous brokers, particularly those that offer comprehensive services, give customised guidance on investments. They also supply margin options to their customers, enabling them to engage in trading with funds borrowed. | Typically focus on client relationship management, advisory services, and channelling orders through the broker. Their service scope is more limited in comparison to full-service brokers. Sub-brokers also help bridge the gap between brokers and clients, especially in the fields where the broker may not have a direct presence. They also have a big role in expanding the broker’s business by acquiring new clients. |
| Regulatory Differences | Brokers are directly registered with SEBI and stock exchanges. SEBI requires brokers to comply with stringent regulatory requirements. | Sub-brokers operate under a registered broker. They are bound by the broker’s license and operate within the regulatory framework established by the broker. |
| Fees and Commissions | Brokers typically earn higher fees since they provide direct access to trading platforms, research, and other value-added services. | Sub-brokers, on the other hand, get paid by the broker for bringing in clients and making trades easier. |
| Client Interaction | Brokers do direct interaction with the clients for all the services. | They majorly focus on client acquisition and advisory. They rely on the broker for trading. |
Conclusion
Both brokers and sub-brokers work have important roles in the financial spectrum, however, their characteristics, regulatory status, and services differ. Brokers are registered entities that have direct access to the respective stock exchanges and offer complete services to their customers. Sub-brokers, who are intermediaries working under the licences of a broker, provide advisory and localised services to their clients and have no direct trading abilities. Thus, knowing these differences will make the investor know to whom to relate when getting into the stock market. Additionally, the emergence of online trading app has provided investors with direct access to brokers, allowing them to easily trade from any location.
