Regulating the Sub-Brokers: Historical, Current and Future Challenges

Sub-brokers played a pre-dominant role in Indian capital market. Financial Sector reforms and high technology involvement started displacing the sub-brokers slowly. The regulation of the sub-brokers remained as a challenge for the regulators. The regulators have taken number of stands and steps in the process of regulation. The special treatment given to the investors while dealing with the sub-brokers and the unlimited liability fixed on the stock broker prevented major growth in number of sub-brokers. This prevention affected the stock broker considerably. SEBI amended the code of conduct for sub-brokers recently leading to prevention of sub-brokers from issuing contract notes and accepting money/security. Still the risks remain unaltered for the stock broker. An analysis of the regulatory changes shows the stock broker need to be given a free hand in deciding their business model instead of compelling them to go for a registered intermediary route.