Stock Broking

Dr. Kamaljeet Kaur

Assistant Professor

Guru Nanak Khalsa Institue of Technology

and Management
 Introduction and meaning
• To the setting up of SEBI, stock exchanges were
being supervised by Ministry of Finance under
the Securities Contracts Regulation Act (SCRA)
and were operating more or less self- regulatory
organisations.

• SEBI was set up to ensure that stock exchanges

perform their self-regulatory role properly.

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• To encourage the foreign institutional investors (FIIs) to
invest in India, SEBI has issued a different set of guidelines
for foreign brokers with regard to registration with SEBI,
transactions, market operations, reporting system and
their inspection by SEBI
• A transaction on a stock exchange must be made between
two members of the exchange. As ordinary person can’t
walk into the stock exchange and ask to trade stock. Such
an exchange must be done through a broker.

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• A stock broker is a regulated professional
broker who buys and sell shares and other
securities through market makers or firms on
behalf of investors. A broker may be employed
by a brokerage firm. Stock broking firms
provides a complete range of trading services
and personalised investment advice to their
clients.

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and Management
 Stockbroking services include:

• Trade Execution: which means that the broker will

only carry out the client’s instructions to buy or sell.
• Advisory Dealing: where the broker advises the
client on which shares to buy and sell, but leaves
the final decision to the investors.
• Portfolio Construction: where the stockbrokers
ascertains the client’s investment objectives and
then makes all dealing decisions on the client’s
behalf.
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 Role of STOCK BROKER
• Stock broker reforms the role of an investment
advisor and financial advisor.
• Stockbrokers exclusively trade on their own
behalf, as a principal, speculating that a share
or other financial instrument will increase or
decline in price.

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 Functions
• A stockbroker invests in the stock market for
individuals or corporations. Only members of
the stock exchange can conduct transactions,
so where individuals or corporations want to
buy or sell stocks they must go through a
brokerage house.
• Stockbrokers often advise and counsel their
clients on appropriate investments.

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• The broker sends the order out to the floor of the
securities exchange by computer or by phone.
When the transaction has been made , the broker
supplies the clients with a price.

• Stockbrokers spend their time in a fast- paced

office, usually working from nine to five, unless
they are just starting out or have to meet with
clients.
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 Brokers to an ISSUE
• Brokers are the person who procure subscriptions to issue
from prospective investors spread over larger area. A
company can appoint as many number of brokers as it
wants.

• Members are prohibited from acting as managers or

brokers to issue by SEBO regulations unless the stock
exchange of which they are members give its approval and
company complies with the listing requirements and
undertakes to have its securities listed on a recognized
stock exchange.
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Particulars of the performance of brokers lie with the
leading merchant bankers who act as managers to the
issue.
Obtaining Consent: The company consults the stock
exchanges and writes to all active brokers of all exchanges
and obtains their consent to act as brokers to the issue.
Filing with ROV: A copy of the consent letter should be
filed with the Registrar of companies along with a copy of
the prospectuse stating the names and addresses of the
brokers to the issue.
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• Brokerage Rate: Brokerage rate applicable to all types of
public issues of industrial securities is fixed at 1.5%
whether the issue is underwritten or not.

• Mailing Cost and Other Expenses: The mailing cost and

other out of pocket expenses for convassing of public
issues have to be borne by the stock brokers. The company
will not make any payment to the brokers on this account.
A clause to this effect must be included in the agreement
to by entered into between the broker and the company.

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• Private Placement: The listed companies are
allowed to pay brokerage on private placement
of capital at the maximum rate of 0.5%.
• No Brokerage in certain Cases: Brokerage will
not be allowed in respect of promoter’ quota
including the amounts taken up by the
directors, their friends and the employees; and
in respect of the rights issues taken up or
renounced by the existing sharholders.
Guru Nanak Khalsa Institue of Technology
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 SEBI ( Stock Brokers and Sub-Brokers)
Regulations,1992

• The Regulations define the stock broker as a

member of a registered stock exchange, and a
sub- broker as an agent of the stock broker or
a person who assists the investors to deal with
the stock broker

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 Registration
• Registration with SEBI is mandatory for both
stock broker and sub brokers under the
regulation.
• Registration is for a period of 3 years and one
of the conditions for renewal is redressal of
investors complaints by the broker and sub-
brokers, within a month’s time.

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• A sub- broker is required to submit along with
the application for registration, a letter of
recommendation from a stock broker of a
recognized stock exchange, and two
references one of which should be from his
banker.

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 Maintain books of accounts
• Stock brokers are required to maintain books of
account and documents as stipulated by SEBI,
which include records of transactions, contract
books , duplicates of contract notes issued,
margin deposit books and the agreements with
sub-broker specifying their authority and
responsibility. Books and records are required
to be preserved for a minimum period of 5
years.
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 Suspend or Cancel Registration

• SEBI has the power to suspend or cancel

registration and impose penalties to a broker,
if he is
• (i) found to be indulging in manipulations and
rigging of prices;
• (ii) violates any of the provisions of the SCRA
and the Regulations.

Guru Nanak Khalsa Institue of Technology

and Management
 Thanks

Guru Nanak Khalsa Institue of Technology

and Management