Financial markets can be intricate and volatile. It necessitates professionals who deeply understand various investment instruments, market dynamics, and risk management strategies. This is where authorised persons come in handy. These individuals are responsible for executing trades on behalf of others, such as clients, investors, or institutions. But the question is can they trade for themselves? Let's find out.
Who is the authorised person?
An authorised person (AP) is someone a stock broker appoints to provide access to the stock exchange's trading platform as an agent of the broker. An AP can be an individual, a partnership firm, an LLP or a corporate body.
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An AP must obtain a certificate of registration from the stock exchange. It must also agree with the stock broker, laying down both parties' rights and responsibilities.
Can an Authorised Person trade for himself?
As an AP, you can trade for yourself in the following scenarios:
- If you are an individual, you can trade for yourself in your own name or the name of his immediate relatives (spouse, dependent parents and dependent children) as a stockbroker client.
- If the AP is a partnership firm, LLP or body corporate, it can trade for itself in its own name or the name of its partners, directors or promoters as a stock broker client.
In both cases, the AP has to disclose his trading account details to the stock broker and the stock exchange. He must ensure that there is no conflict of interest with the clients of the stockbroker. The AP has to abide by the code of conduct, margin requirements and other rules and regulations applicable to the stockbroker's clients.
Advantages & Disadvantages
Before engaging in self-trading as an AP, it is necessary to consider the pros and cons carefully.
- You may enjoy the benefits of being a trade insider. Since you have access to the research reports of the stockbroker and receive market news first-hand, you can use those for better profitability.
- You can earn a commission in addition to the profit from the investment.
- You can leverage your knowledge of the latest tools and techniques to find better investment opportunities.
- When you trade for yourself as an AP, your trading account is closely monitored to ensure no improper actions or conflicts of interest arise.
- As an AP, you may have to bear the risk and responsibility of your trading decisions and losses without any support or guidance from the stockbroker.
- You may face legal or ethical issues if he trades based on insider information, tips, or recommendations unavailable to the public.
What are the eligibility criteria for an Authorised Person?
According to SEBI circular MIRSD/Dr-1/Cir-16/09 dated November 06, 2009, the eligibility criteria to become an AP are:
- You must be a citizen of India.
- You must not be less than 18 years of age.
- You must not have been convicted of any offence involving fraud and dishonesty.
- It is necessary to have successfully completed at least a 10th standard or equivalent examination from a government-recognised institution.
- You should have the necessary infrastructure, like adequate office space, equipment and workforce, to effectively discharge the activities on behalf of the stockbroker.
For partnership firm, LLP or body corporate:
- Everyone involved, including partners and directors, must meet the specific requirements for individuals mentioned earlier.
- The partnership deed and memorandum of association should include a specific clause that allows the individual to engage in the trading of securities.
- The firm must have the required infrastructure, such as sufficient office space, equipment, and staff, to efficiently carry out activities on behalf of the stockbroker.
The processing fees for AP registration are Rs. 5000/- per segment (plus GST).
As an AP, you can trade for yourself. But you need to be careful and ethical in doing so. You follow the rules and regulations laid down by the regulatory body. Also, ensure a clear distinction between your personal trading and professional services.
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