Sub Brokers in India

1. Introduction

The Indian stock market has witnessed remarkable growth in the last two decades, driven by rising investor participation, technological advancements, regulatory reforms, and growing awareness of financial instruments. With millions of new investors opening demat accounts every year, the need for intermediaries who can help bridge the gap between stock exchanges, brokers, and retail clients has become stronger.

While full-service brokers and discount brokers have taken center stage, another critical segment—sub brokers—continues to play a vital role in expanding the reach of capital markets, particularly in semi-urban and rural areas. Sub brokers serve as connectors between brokers and investors, making financial markets more inclusive and accessible.

This essay provides a comprehensive description of sub brokers in India trading, exploring their role, responsibilities, evolution, regulatory framework, benefits, challenges, and future prospects.

2. Who is a Sub Broker?
Definition

A sub broker is an intermediary who is not a direct trading member of stock exchanges like NSE (National Stock Exchange) or BSE (Bombay Stock Exchange) but acts on behalf of a registered stockbroker to assist investors in trading and investing activities.

They essentially work as franchise partners or authorized representatives of larger brokers, helping clients open demat accounts, execute trades, and access investment products.

Key Features

They are agents of main brokers but deal directly with clients.

They help with trading in equities, derivatives, commodities, mutual funds, IPOs, and other products.

They earn a commission on the brokerage generated by their clients.

Sub brokers are particularly active in tier-2 and tier-3 cities, expanding the market penetration of stockbrokers.

3. Evolution of Sub Brokers in India

The sub-broker concept has evolved significantly over time:

1990s – Early Expansion

With economic liberalization, stock market participation began to rise.

Sub brokers emerged as local representatives for brokers, connecting investors to exchanges.

2000s – Rapid Growth

Technological platforms (like ODIN) allowed sub brokers to service clients better.

Franchisee models gained traction, with brokers like Sharekhan, Angel Broking, and India Infoline expanding aggressively through sub brokers.

2010s – SEBI Regulations Tighten

SEBI increased oversight to curb malpractices.

Online brokers emerged, reducing dependency on physical sub brokers.

2020s – Digital Era & Decline in Traditional Sub Brokers

Discount brokers like Zerodha, Upstox, and Groww disrupted the industry with low brokerage and direct online platforms.

Many sub brokers shifted to becoming Authorized Persons (APs) under SEBI regulations.

4. Regulatory Framework

Sub brokers in India are governed by SEBI (Securities and Exchange Board of India) and stock exchanges like NSE, BSE, and MCX.

Key Regulations

Registration Requirement

Sub brokers had to register with SEBI earlier.

Post-2018, SEBI discontinued fresh sub broker registrations, and all were migrated to the Authorized Person (AP) model.

Authorized Person (AP) Model

Sub brokers now operate as APs under a stockbroker’s license.

APs need approval from the stock exchanges (not SEBI directly).

Eligibility Criteria

Minimum age: 18 years.

Must be a citizen of India.

Educational qualification: Preferably 12th pass.

Clean financial background (no defaults or fraud cases).

Compliance & Code of Conduct

Sub brokers must follow KYC (Know Your Customer) norms.

They cannot misrepresent investment opportunities.

They must act in clients’ best interests.

5. Roles and Responsibilities of Sub Brokers

Sub brokers perform multiple critical roles in India’s trading ecosystem:

1. Client Acquisition

Introduce new clients to the stock market.

Build trust and long-term relationships with investors.

2. Account Opening Support

Assist clients in opening demat and trading accounts.

Help with documentation, KYC compliance, and onboarding.

3. Trade Execution

Place buy and sell orders on behalf of clients through the broker’s platform.

Guide clients about different market segments (equity, derivatives, commodities).

4. Advisory Services

Provide insights on stocks, IPOs, and mutual funds.

Educate investors about risks and opportunities.

Although they are not registered advisors, many sub brokers act as informal guides.

5. Local Market Expansion

Brokers leverage sub brokers to penetrate smaller towns.

Sub brokers act as brand ambassadors for the broker in their region.

6. Customer Support

Resolve client issues regarding trading platforms, fund transfers, and settlements.

Offer personalized service that online-only brokers often lack.

6. Business Model of Sub Brokers

The sub-broker model is essentially a revenue-sharing partnership between the stockbroker and the sub broker.

Revenue Generation

Sub brokers earn commissions on brokerage fees charged to clients.

Typical sharing ratio: 60:40 or 70:30, where sub brokers keep 60–70% of the brokerage revenue.

Cost Structure

Initial franchise fees to the broker (₹50,000 – ₹3,00,000 depending on brand).

Infrastructure setup (office, computers, internet, staff).

Ongoing operational costs.

Example

If a client generates brokerage of ₹10,000 in a month:

Sub broker share (70%) = ₹7,000

Broker share (30%) = ₹3,000

7. Advantages of Being a Sub Broker

Low Entry Barrier – Compared to becoming a full-fledged broker, the cost and compliance burden is lower.

Established Brand Support – Sub brokers leverage the brand, technology, and research of large brokers.

High Earning Potential – With a good client base, sub brokers can earn substantial monthly income.

Flexibility – Can operate in chosen geographical regions.

Growing Market – Rising financial literacy ensures continued demand for intermediaries.

8. Challenges Faced by Sub Brokers

Competition from Discount Brokers

Low-cost platforms like Zerodha and Groww reduce reliance on intermediaries.

Regulatory Shifts

Migration from sub broker to AP model created uncertainty.

Technology Upgradation

Need to continuously invest in digital platforms and stay updated.

Client Expectations

Investors expect real-time service and accurate advice.

Misguiding clients can lead to loss of reputation.

Margin Pressure

With declining brokerage rates, earning potential is squeezed.

Famous Brokers and Sub Broker Networks in India

Some leading brokerage houses with large sub broker/authorized person networks include:

Angel One (Angel Broking) – One of the largest franchise networks.

Sharekhan – Known for its strong sub broker model.

ICICI Direct – Leverages bank branches and APs.

Motilal Oswal – Strong research-backed franchise business.

IIFL Securities – Popular in tier-2 and tier-3 towns.

Conclusion

Sub brokers in India have been the backbone of stock market penetration for decades. From being local representatives of big brokers in the 1990s to evolving as Authorized Persons in today’s digital era, they continue to play a vital role in democratizing market access.

While competition from discount brokers and regulatory changes have reshaped their landscape, sub brokers who embrace technology, diversify into multiple financial products, and focus on personalized advisory will thrive in the future.

The Indian capital market is still in its growth phase, and sub brokers will remain a bridge between financial institutions and retail investors, particularly in untapped regions.