Congratulations! You are starting your journey into a largely regulated yet profitable business if you intend to become an Authorized Person( AP) in the Indian stock market. Understanding and abiding by SEBI and NSE laws is essential, regardless of whether you are seeking to start a franchise or partnering with a stockbroker to give trading and investing services. To help you get started appropriately, we have included a comprehensive SEBI and NSE compliance roster for new Authorized Persons in this guide.

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Who is an Authorized Person (AP)?

A person, partnership, company, limited liability association, or business to which a stockbroker has granted authorization to use a stock exchange's trading platform is known as an Authorized Person. They serve as a connection between the brokerage and its customers. Authorized persons should follow the rules established by the Securities and Exchange Board of India( SEBI) and the relevant exchange, and they should be registered with the exchange( NSE, BSE).

Eligibility Criteria for Becoming an AP

Before applying, ensure you meet the basic eligibility conditions. Here's a quick look:

SEBI Compliance Checklist for New APs

What is SEBI?

SEBI is the Securities and Exchange Board of India, which oversees the country's securities market. Shielding investor interests, regulating stock marketplace players, and making sure that marketplace operations are transparent are the primary duties of SEBI, which was founded in 1988 and given legal power in 1992. Authorized Persons and other securities market middlemen are needed to abide by SEBI regulations. The stock market's unvarying operations, investor protection, and openness are guaranteed by SEBI regulations. According to SEBI, you must do the following.

NSE Compliance Checklist for Authorized Persons

What is NSE?

Initiated in 1992, the National Stock Exchange( NSE) is one of the biggest and most sophisticated stock exchanges in India. It provides a platform for trading debt, derivatives, stocks, and other assets. However, you'll serve as an AP within the NSE's infrastructure and compliance framework if your broker is a registered NSE member. There are certain paperwork and procedural norms set out by the National Stock Exchange( NSE). This is a thorough checklist.

1. Application Process

Fill out the NSE AP Application Form

Submit it through the registered stockbroker

2. Documents Required

3. Infrastructure Requirement

4. Agreement with Stockbroker

Sign a formal Authorized Person Agreement
Mention duties, revenue sharing, and liability clauses

5. Fees

Post-Registration Compliance

Once you’re approved as an AP, compliance doesn’t stop. You must ensure the following ongoing responsibilities:

Key Duties of an Authorized Person

Beyond compliance, here’s what you’ll handle day-to-day:

Sample NSE AP Agreement (Key Clauses)

While the broker typically drafts the AP agreement, ensure you look for the following:

1. Revenue Sharing Ratio

The distribution of earnings from customer transactions between the stockbroker and the Authorized Person is defined in this section. Generally, it gives a proportion( similar to 60:40 or 70:30) based on the brokerage that's made from deals. Asset types similar to mutual funds, derivatives, and stocks may cause it to change. Also, the agreement should specify if the AP receives compensation from brokerage alone or additional services, such as account opening and advising. Payout frequency( monthly/ quarterly) should be specified, and there should be no room for doubt. Having a clear income structure helps prevent differences later on.

2. Territorial Restrictions

To avoid conflicts with other APs or internal sales teams, some brokers place limitations on the Authorized Person's territory or geographic reach. This provision specifies areas similar to a city, district, or state where the AP is permitted to announce and do business. It guarantees market segmentation and aids in the broker's regulation of partner rivalry. Penalties or, indeed, contract termination may follow territorial boundary violations. APs are needed to specify the designated area and whether online or digital marketing beyond this area is allowed. Defined limits can optimize local customer acquisition.

3. Liability and Indemnity Clauses

The scope of AP's liability for any losses, frauds, or misconduct involving its customers is described in this section. It generally says that the AP will defend the broker against lawsuits, penalties, or losses brought on by the AP's neglectfulness or noncompliance. APS must be conscious of the risks they face, particularly when it comes to managing guests, gathering documents, and performing KYC. Certain contracts could also include the need for professional indemnity insurance. Examine this provision completely to help with any legal issues in the future.

4. Exit/Termination Terms

The terms under which any party may end the association must be outlined in detail in the agreement. This covers voluntary departure, contract breaches, bad work, legal infractions, or damage to one's name. The notice time( generally 30 to 90 days), the ultimate settlement procedure, and how current guests are treated should all be included. You may avoid unexpected business dislocations by being mindful of these words. Also, look for any provisions about non-compete agreements or post-termination blackout periods. However, a flawless disengagement is assured by having clear exit terms, if necessary.

5. Compliance Obligations

The AP's obligations to follow all SEBI, NSE, and broker-specific compliance requirements are outlined in this section. It entails proper customer onboarding, adherence to KYC and AML protocols, preventing misselling, and prompt record-keeping. Additionally, the AP must assist with customer grievance resolution, audits, and inspections. Penalties or license suspension might result from any noncompliance. This provision should include the broker's regular training and updates. Maintaining company continuity and regulatory confidence is facilitated by meticulously adhering to compliance responsibilities.

Common Mistakes New APs Should Avoid

Conclusion

Entering India's expanding financial markets is made possible by becoming an Authorized Person. However, it has obligations. Maintaining strict adherence to SEBI and NSE regulations not only safeguards you fairly but also fosters confidence with your broker and customers. You are positioning yourself for long-term success as a trustworthy financial intermediary by adhering to this comprehensive checklist, which covers everything from documents to post-registration compliance.

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