For two and a half decades the sub-broker was the foot-soldier of the Indian securities market — a SEBI-registered intermediary who sat between the trading-member stock broker and the retail investor in small towns the broker could never have reached on its own. The Securities and Exchange Board of India (SEBI) then did something unusual: rather than tighten the category, it abolished it. By the circular of 3 August 2018 the sub-broker ceased to be a SEBI-registered intermediary at all, its functions absorbed into the “authorised person” (AP) — a creature of the stock exchange, not of SEBI, for whose every act and omission the appointing broker is made answerable. This chapter traces that arc: the statutory definition of a sub-broker, the parallel 2009 birth of the authorised person, the 2018 merger, and the agency and liability law that survives the relabelling.
Where this topic sits in the SEBI scheme
The Indian securities market is regulated by a layered architecture. At the apex sits the SEBI Act, 1992; below it the conduct of every market intermediary is governed either by the omnibus SEBI (Intermediaries) Regulations, 2008 or by a product-specific code. For the broking community that product-specific code was the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 — the same instrument examined in Stock Brokers Regulations, 1992. The sub-broker and, after 2009, the authorised person were both built on the spine of that 1992 framework rather than on a free-standing regulation of their own.
The key structural point a candidate must grasp at the outset is that the sub-broker and the authorised person were never independent market participants. Each existed only as a satellite of a registered stock broker (a trading member of a recognised stock exchange). The investor's contract, the settlement obligation and the regulatory accountability all ran to the broker; the sub-broker or AP was merely the broker's extended arm. That single idea — derivative existence, principal liability — is the thread that runs through every case in this chapter and explains why SEBI could collapse the two categories into one without re-engineering the market.
The statutory definition of a sub-broker
Regulation 2(1)(gc) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 defined a sub-broker as “any person not being a member of stock exchange who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers.” Three elements deserve unpacking. First, the negative qualifier — “not being a member of stock exchange” — distinguishes the sub-broker from the broker itself, who under Regulation 2(1)(j) is “a member of a stock exchange.” Second, the phrase “as an agent or otherwise” imports the law of agency: the sub-broker acts for the broker, not on his own account. Third, the function is “assisting the investors,” locating the sub-broker firmly at the retail interface.
Registration was mandatory and SEBI-centred. Regulation 11(1) provided that “no sub-broker shall act as such unless he holds a certificate granted by the Board under these regulations,” and the application had to carry a recommendation in Form C from the affiliating stock broker. The sub-broker was thus a SEBI-registered intermediary in his own right, holding a certificate of registration distinct from the broker's. This is the feature that the 2018 reform abolished. For the discipline that attaches to the broker who employs such persons, see the Stock Brokers Code of Conduct.
The broker's duty not to deal with an unregistered sub-broker
The architecture closed on both sides. While Regulation 11 barred an unregistered person from acting as a sub-broker, a complementary provision barred the broker from using one. The broker was prohibited from dealing with any person as a sub-broker unless that person held a certificate of registration from SEBI. The duty was not a formality; SEBI's adjudicating officers repeatedly treated dealing with an unregistered sub-broker as a substantive breach of the broker's Code of Conduct, on the reasoning that the broker is the gatekeeper of the market and cannot delegate that gate-keeping to an unlicensed third party.
This mutual prohibition matters conceptually because it makes the broker the regulatory anchor. The investor in a mofussil town might know only the sub-broker's face, but the law insisted that there always be a registered, capital-adequate broker standing behind that face. The capital that backs that broker is the subject of Stock Brokers Capital Adequacy. The point survived the 2018 reform almost unchanged — it simply migrated from “do not deal with an unregistered sub-broker” to “do not appoint an AP without the exchange's prior approval.”
The gate-keeping duty also had an evidentiary dimension. A broker could not later disown a sub-broker by claiming ignorance of his unregistered status, because the registration system was public and the broker had itself issued the Form C recommendation that initiated the sub-broker's registration. Having vouched for the person at the threshold, the broker could not disclaim him at the point of liability. SEBI's adjudicating officers used this reasoning to reject the recurrent defence that a sub-broker had “acted on his own,” treating the broker's failure to confirm or maintain the registration as the very negligence the Code of Conduct forbids.
Sub-broker as agent: the principal-agent relationship
The words “as an agent” in the definition are not decorative. They invoke Chapter X of the Indian Contract Act, 1872. Under Section 182, an “agent” is a person employed to do any act for another or to represent another in dealings with third persons, and the person represented is the “principal.” Read together with the SEBI definition, the broker is the principal and the sub-broker the agent. The consequences flow from agency doctrine: acts done by the sub-broker within the scope of his authority bind the broker, and the broker is answerable to the investor for them.
The Supreme Court mapped this terrain in Naresh K. Aggarwala & Co. v. Canbank Financial Services Ltd., (2010) 6 SCC 178 (also reported AIR 2010 SC 2722). The Court examined a chain of securities transactions routed through a broker and underscored that dealings in securities must conform to the regulatory framework of the recognised stock exchange and that contracts struck outside that framework cannot be enforced. While the dispute itself concerned the enforceability of transactions under the Securities Contracts (Regulation) Act, 1956, the case is routinely cited for the proposition that the broker remains the responsible principal in the chain that links the market to the investor through intermediating hands. The agency premise also explains why, when the sub-broker category was abolished, no new liability gap opened — the broker had always been the principal.
The birth of the authorised person (2009)
The authorised person did not replace the sub-broker overnight. It was introduced as a parallel channel by SEBI Circular No. MIRSD/DR-1/Cir-16/09 dated 6 November 2009, titled “Market Access through Authorised Persons,” issued on the recommendation of SEBI's Secondary Market Advisory Committee. The object was to expand the reach of exchange-traded products by letting brokers extend their footprint through agents who needed only the stock exchange's approval rather than a fresh SEBI registration.
The circular defined an authorised person as “any person — individual, partnership firm, LLP or body corporate — who is appointed as such by a stock broker (including trading member) and who provides access to trading platform of a stock exchange as an agent of the stock broker.” The structural contrast with the sub-broker was immediate and deliberate: the sub-broker was registered by SEBI, whereas the AP needed only the prior approval of the concerned stock exchange. For three years (and in truth until 2018) the two channels coexisted — a sub-broker registered with SEBI and an authorised person approved by the exchange, doing almost identical work for almost identical brokers.
Appointment and eligibility of an authorised person
The 2009 framework set out a controlled appointment process. A stock broker may appoint one or more authorised persons only after obtaining specific prior approval from the concerned stock exchange for each such person, and the approval as well as the appointment is for a specific segment of the exchange. There is therefore no such thing as a general, market-wide AP licence; approval is broker-specific and segment-specific.
Eligibility was framed in fit-and-proper terms. An individual applicant had to be an Indian citizen, at least 18 years old, of good reputation and character, free of any conviction for fraud or dishonesty, educated to at least the tenth standard, and the holder of the relevant NISM/segment certification. Where the AP was a partnership firm, LLP or body corporate, all the partners or directors had to satisfy those conditions and the constitutional documents (partnership deed or memorandum) had to contain an object clause permitting dealing in the securities business. The AP also had to maintain adequate infrastructure — office space, equipment and manpower — to discharge the activities entrusted to it. These criteria mirror the fit-and-proper threshold that the SEBI (Intermediaries) Regulations, 2008 apply across intermediary categories.
Broker liability for the authorised person's conduct
The single most examinable feature of the AP regime is the broker's vicarious responsibility. The 2009 circular states in terms that “the stock broker shall be responsible for all acts of omission and commission of the authorised person” and that such acts “shall be deemed to be those of the stock broker.” This is a deeming fiction far stronger than ordinary agency: it does not merely make the broker liable, it treats the AP's act as the broker's own act. The broker cannot plead that the wrong was the AP's frolic.
Two consequences follow. First, an investor wronged by an AP can proceed against the broker directly, and SEBI's enforcement machinery will hold the broker accountable irrespective of any internal indemnity between broker and AP. Second, the broker has a powerful regulatory incentive to supervise its APs, because their misconduct lands squarely on the broker's certificate of registration. This deeming provision is the policy reason SEBI felt able to dispense with separate SEBI registration of the front-line agent altogether: the accountability had already been concentrated in the broker.
Funds, securities and the remuneration rule
To prevent the AP from becoming a parallel, unsupervised broker, the 2009 circular imposed strict rules on money and securities. The authorised person “shall not receive or pay any money or securities in its own name or account,” and all receipts and payments must be in the name or account of the stock broker. The investor's funds and scrip therefore never touch the AP's own ledger; they flow through the broker's regulated accounts, where they remain subject to the client-funds segregation discipline that applies to brokers generally.
Remuneration was equally constrained. The AP receives his remuneration for his services only from the stock broker and may not charge any amount from the clients. The economic relationship thus runs broker-to-AP, not client-to-AP, reinforcing that the AP is a cost the broker bears rather than an independent fee-earner. These two rules — no client money in the AP's name, no client charges by the AP — are the practical guardrails that keep the AP within the agency mould and prevent the re-emergence of an unregulated sub-market.
The 2018 decision to discontinue the sub-broker
The turning point came at the SEBI Board meeting held on 21 June 2018, where the Board decided to discontinue the sub-broker as an intermediary to be registered with SEBI. The operative instrument was SEBI Circular No. SEBI/HO/MIRSD/DoP/CIR/P/2018/117 dated 3 August 2018, captioned “Role of Sub-Broker vis-à-vis Authorized Person.” The premise was candidly stated: there was no material difference in the operative role of a sub-broker and an authorised person, so maintaining two parallel categories — one SEBI-registered, the other exchange-approved — served no regulatory purpose and merely duplicated compliance.
From the date of the circular, no fresh sub-broker registrations would be granted by SEBI. The category was, in effect, frozen and scheduled for extinction. The reform is best understood not as deregulation but as consolidation: the same person continued to do the same work at the retail interface, but now wore a single label — authorised person — and answered to a single accountability chain running through the broker to the exchange.
Migration, deemed surrender and the transitional map
Existing sub-brokers were given until 31 March 2019 to migrate — either to act as an authorised person or, if eligible, to become a trading member in their own right. The circular drew a careful transitional map. A registered sub-broker already approved to act as an AP in the derivatives segment would be registered with the exchange to continue as an AP in the cash segment; a sub-broker not so approved would likewise be registered by the exchange as an AP in the cash segment, so that operations continued without disruption. A sub-broker who met the eligibility criteria under the stock-exchange bye-laws and SEBI regulations could instead apply to become a trading member.
The consequence of inaction was automatic. A sub-broker who did not choose to migrate into an AP or trading member “shall be deemed to have surrendered their registration with SEBI as Sub-Broker w.e.f. March 31, 2019,” and “the certificate of registration granted to the Sub-Brokers by SEBI shall stand withdrawn.” The deeming worked in the sub-broker's favour operationally — nobody was thrown out of the market — but it terminated the SEBI-registered status that had defined the category since 1992. On the fees front, renewal fees for 2018-19 were to be paid through, with subsequent fees to be refunded on the exchange's recommendation, reflecting that the SEBI registration was being wound down rather than merely suspended.
Fees, registration and the BSE Brokers Forum principle
The fee treatment in the 2018 transition cannot be read in a vacuum; it sits against a settled body of fee jurisprudence. In B.S.E. Brokers' Forum, Bombay v. Securities and Exchange Board of India, (2001) 3 SCC 482 (judgment dated 1 February 2001), the Supreme Court upheld SEBI's power to levy registration fees on stock brokers and held that turnover is a permissible measure for the levy, the fee being a charge for the regulatory service of registration and supervision. The Court did, however, direct SEBI to act on the recommendations of the expert committee on the fee structure, leading to amendments to the Regulations.
The relevance to sub-brokers and APs is twofold. First, it confirms that SEBI registration is a fee-bearing privilege, which is precisely what the sub-broker held and the AP does not — the AP pays the exchange, not SEBI, removing one layer of fee. Second, it explains the refund mechanism in the 2018 circular: once a sub-broker's SEBI registration is wound down on migration, the regulatory service for which the SEBI fee was charged ceases, and the prospective fee falls away. The principle that the fee follows the registered status is thus the quiet logic behind the transitional fee treatment.
The wider doctrinal point from BSE Brokers' Forum is the character of the levy. The Court treated the registration fee as a regulatory fee correlated to the service of supervision, not a tax requiring quid pro quo in the strict sense; turnover was upheld as a workable yardstick for the broker's footprint in the market. Carried into the sub-broker context, this is why a sub-broker — being a separately registered, separately supervised intermediary — bore its own fee, and why the abolition of that registered status logically extinguished the prospective fee rather than merely transferring it. The fee, in other words, was always the price of being on SEBI's register; cease to be on it, and the price ceases too.
Sub-broker versus authorised person: the decisive contrasts
For examination purposes the contrast is best held as a short table of differences. Registering authority: the sub-broker was registered by SEBI; the AP is approved by the stock exchange. Certificate: the sub-broker held a SEBI certificate of registration; the AP holds none, operating under the exchange's segment-specific approval. Scope of approval: a sub-broker's registration was general within the broking relationship; an AP's approval is broker-specific and segment-specific. Fee payer: the sub-broker paid registration and renewal fees to SEBI; the AP's relationship is with the exchange.
Yet the continuities are as important as the contrasts. In both models the front-line person is an agent of a registered broker; in both, the broker is responsible for the agent's acts; in both, client money flows through the broker, not the agent; and in both, the investor's ultimate counterparty is the broker. The 2018 reform changed the label and the registering door, not the underlying agency and liability structure. A candidate who answers “what changed in 2018?” should therefore lead with “the registering authority and the existence of a separate SEBI registration,” not with any change in the agent's substantive role or the broker's responsibility.
Enforcement and the supervisory burden on the broker
Because the broker bears deemed liability for the AP, SEBI's enforcement focus is overwhelmingly on the broker's supervision. Adjudication orders in the broking space routinely fault brokers for failing to monitor the persons operating under them — dealing through an unregistered sub-broker before 2018, or failing to supervise an AP after. The penalty lands on the broker's registration, which is why the conduct standards in the Stock Brokers Code of Conduct require diligence, due care and the protection of clients' interests at every node of the broker's distribution network.
The structural lesson is that abolishing the sub-broker did not dilute investor protection; it relocated and concentrated it. By removing the AP's independent SEBI registration, SEBI removed any argument that the front-line agent was a separately accountable intermediary whose lapses the broker could disown. Everything now points back to the broker, whose capital, conduct and supervision — examined across the broking chapters — are the real guarantee standing behind the investor.
For the examinee, the practical takeaways are compact. State the 1992 definition with its three elements; identify the agency relationship and its source in Section 182 of the Contract Act; date the AP's introduction to the 2009 circular and the sub-broker's abolition to the 2018 circular, with the 31 March 2019 deadline and the deemed-surrender consequence; and always finish on the broker's deemed liability, the no-client-money and no-client-charge rules, and the segment-specific, exchange-granted nature of AP approval. An answer that marshals these points in sequence demonstrates both the doctrine and the policy. To see how these threads connect across the broking intermediary, return to the hub at SEBI Intermediaries notes.
Frequently asked questions
What is the difference between a sub-broker and an authorised person under SEBI law?
A sub-broker was registered by SEBI and held a SEBI certificate of registration, whereas an authorised person (AP) is appointed by a broker and only needs the prior approval of the concerned stock exchange for a specific segment. Both are agents of a registered broker, and in both the broker is responsible for the agent's acts. The decisive difference is the registering authority and the existence of a separate SEBI registration, not the substantive role.
When and how was the sub-broker category abolished?
The SEBI Board decided to discontinue the sub-broker as a SEBI-registered intermediary at its meeting on 21 June 2018, implemented by Circular No. SEBI/HO/MIRSD/DoP/CIR/P/2018/117 dated 3 August 2018. No new sub-broker registrations were granted thereafter, and existing sub-brokers were given until 31 March 2019 to migrate to authorised person or trading member status.
What happened to sub-brokers who did not migrate by 31 March 2019?
Sub-brokers who did not choose to migrate were deemed to have surrendered their registration with SEBI with effect from 31 March 2019, and their SEBI certificate of registration stood withdrawn. In practice the transitional scheme registered most existing sub-brokers with the exchange as authorised persons in the cash segment, so operations continued without disruption.
Is a broker liable for the acts of its authorised person?
Yes. The 2009 circular (MIRSD/DR-1/Cir-16/09) states that the stock broker is responsible for all acts of omission and commission of the authorised person, and that such acts are deemed to be those of the stock broker. This deeming fiction makes the broker the responsible principal, consistent with the agency relationship recognised under Section 182 of the Indian Contract Act, 1872.
Can an authorised person collect money or charge fees from clients?
No. An authorised person cannot receive or pay any money or securities in its own name or account; all receipts and payments must be in the name or account of the stock broker. The AP also cannot charge any amount from clients and receives remuneration for his services only from the broker. These rules keep the AP within the agency mould and prevent an unregulated parallel sub-market.
What does the BSE Brokers' Forum case establish about registration fees?
In B.S.E. Brokers' Forum, Bombay v. SEBI, (2001) 3 SCC 482, the Supreme Court upheld SEBI's power to levy registration fees on stock brokers and held that turnover is a permissible measure for the levy, while directing SEBI to act on the expert committee's recommendations on the fee structure. The principle that the fee follows the registered status explains the fee-refund mechanism in the 2018 sub-broker transition.