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Difference between Sub-broker and Franchise of a Broking firm

In the world of stockbroking, people think the sub-broker and franchise sub-broking are the same or there is confusion about it. While both options offer a path into the financial services industry, they differ in their structure and operational aspects. Understanding these distinctions is crucial for selecting the most suitable business model for one’s venture.

Sub-Brokers: Independent Intermediaries

Sub-brokers operate as independent entities, acting as intermediaries between stockbrokers and their clientele. They acquire a license from a registered stockbroker, enabling them to solicit and service clients under the stockbroker’s brand name. Sub-brokers typically retain a higher percentage of the revenue generated from client transactions, enjoying greater autonomy in managing their operations.

Compliance requirements:

  • Sub-brokers must be registered with the stockbroker they are working for.
  • Sub-brokers must undergo training and certification in securities market operations.
  • Sub-brokers must comply with all SEBI regulations and guidelines applicable to stockbrokers

Differential powers:

  • Sub-brokers cannot directly execute trades on behalf of clients.
  • Sub-brokers cannot open or close demat accounts for clients.
  • Sub-brokers cannot handle client funds or securities.
  • Sub-brokers cannot provide investment advice to clients.

Know: The Importance of Sub Brokers in India

Franchise Broker Firms: Partnering with Established Brands

Franchise broker firms, on the other hand, establish a partnership with a well-established stockbroker, gaining access to their brand reputation, trading platform, and client base. In exchange for this support, franchisees pay a franchise fee and agree to adhere to the stockbroker’s guidelines and procedures. The revenue-sharing ratio between franchisees and the stockbroker is typically determined by factors such as the franchisee’s location, client volume, and overall performance.

Compliance requirements:

  • Franchise brokers must be registered with SEBI.
  • Franchise brokers must undergo training and certification in securities market operations.
  • Franchise brokers must comply with all SEBI regulations and guidelines applicable to stockbrokers.
  • Franchise brokers must comply with the terms and conditions of their franchise agreement with the stockbroker.

Differential powers:

  • Franchise brokers can directly execute trades on behalf of clients.
  • Franchise brokers can open or close demat accounts for clients.
  • Franchise brokers can handle client funds or securities.
  • Franchise brokers can provide investment advice to clients.

Business Model Perspective

Here are a few fundamental differences between a sub-broker and franchise business model:

Feature Sub-Brokers Franchise Broker Firms
Brand Name Independent Stockbroker’s brand
Registration Required as ‘Authorized Person’ Required as ‘Authorized Person’
Training Minimal or no training required Training provided by the stockbroker
Revenue Sharing Ratio Higher percentage Depends on various factors
Experience Less or no experience required Specific experience requirements may apply
Support Limited support from stockbroker Extensive support from stockbroker
Risk Involved Higher risk due to independent nature Lower risk due to partnership with a stockbroker

A stock broking franchise is a way to distribute financial products and services locally through a network of franchisees. These franchisees help clients by providing information on various financial segments, including equity, commodities, futures, and options.

To become a franchise holder, individuals must pass a certification exam for registration. In a franchise system, there are two key roles: the franchisor, who lends their company name and business, and the franchisee, who pays a royalty as a revenue share from the brokerage. The franchisee also typically pays an initial security deposit to gain the right to operate under the stockbroking house’s name and system.

A sub-broker, on the other hand, is an agent who assists investors but is not a trading member of a stock market exchange. Their role is to execute securities trades on behalf of customers. The sub-broker agreement involves three parties: the stockbroker, the sub-broker, and the client.

To operate in this industry, individuals must clear a certification exam and register with SEBI (Securities and Exchange Board of India) while adhering to the established rules and regulations.

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