Sub Broker Business Model Explained
A sub-broker is an intermediary who acts on behalf of a broker and assists investors in dealing with securities. A sub-broker is not a direct member of the stock exchange but works under the guidance and supervision of a broker registered with SEBI and the stock exchange. Before we understand the sub-broker business model, let us first understand the benefits it offers.
Benefits of Becoming Sub Broker
- Low capital investment: You don't need to pay a hefty fee to become a stock exchange member. You need to register with SEBI and enter into an agreement with a broker who will provide you with the necessary resources and facilities.
- High earning potential: You can earn a handsome commission from the brokerage generated by your clients. The more clients you have and the more volume they trade, the more income you can make. Some brokers also offer incentives and rewards for achieving certain targets.
- Access to resources and expertise: You can leverage the broker's assets, such as investment strategies, research reports, trading platforms, back-office support, etc., to provide better client services. You can also learn from the broker's experience and knowledge and improve your skills.
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Sub Broker Business Model
The sub-broker business model is based on four main components:
1. Registration with SEBI and agreement with the broker
To become a sub-broker, you need to obtain a registration certificate from SEBI and enter into an agreement with a broker who is a member of the stock exchange. The contract should specify the rights and responsibilities of both parties, such as the brokerage sharing ratio, the services and facilities provided by the broker, the compliance and ethical norms, etc.
2. Client acquisition and retention
As a sub-broker, your primary role is to bring new clients to the broker and help them invest in securities. You need to market yourself and your services to potential investors and convince them to open an account with your broker. You must maintain a good relationship with your existing clients and ensure their satisfaction and loyalty.
3. Brokerage generation and sharing
As a sub-broker, you earn a commission from the brokerage generated by your clients' transactions. The brokerage is shared between you and the broker according to the agreed ratio. For example, if your brokerage sharing ratio is 70:30, you get 70% of the brokerage, and the broker gets 30%. The brokerage sharing ratio may vary depending on factors such as the type of service, the volume of trade, the segment of trade, etc.
4. Services and facilities offered by the broker
As a sub-broker, you can avail of various services and facilities offered by the broker, such as:
- Trading platforms: You can access online or offline trading platforms that allow you to execute orders on behalf of your clients. Some brokers also offer mobile apps or web-based platforms that enable you to trade anytime, anywhere.
- Back-office support: You can get back-office help from the broker that handles tasks such as account opening, KYC verification, fund transfer, settlement, etc. This saves time and hassle, allowing you to focus on your core activities.
- Training and development: You can get training and participate in development programs conducted by the broker that help you enhance your knowledge and skills in stock market trading. These programs can also keep you updated on the latest trends and regulations in the industry.
What are the eligibility requirements to become a sub-broker?
To become a sub-broker in India, you need to meet the following eligibility criteria:
- You should possess at least a Higher Secondary Certificate or equivalent. Some brokerage houses may also require a graduation degree.
- You must not have defaulted on any other stock exchange.
- You must clear the NISM exams for equities, commodities, futures and options, and mutual funds. This is a mandatory requirement for the sub-brokers set by SEBI and stock exchanges.
- You must have a basic understanding of the stock market, computers and technology, and good communication skills.
Conclusion
As you can see, becoming a sub-broker is a rewarding and profitable business model that can help you achieve your financial goals. You can leverage the tools and expertise of the broker and provide quality services to your clients. You can also earn a handsome commission from the brokerage generated by your clients and grow your business.
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