Anyone researching how to join the stock market business as a broker’s partner will run into two terms used almost interchangeably: “sub broker” and “Authorised Person.” In everyday conversation, people still use “sub broker” out of habit, but legally, the two are not the same thing anymore. Knowing the difference matters, especially if you are signing agreements, filing paperwork, or explaining your role to clients.
What “Sub Broker” Used to Mean
Until 2018, a sub broker was a distinct category of market intermediary, separately registered with SEBI in addition to being affiliated with a stock broker. This meant a sub broker held an independent regulatory identity, went through a dedicated SEBI registration process, and operated with certain rights and obligations that came from that direct registration. Clients dealing with a sub broker were, in a sense, dealing with someone who had their own recognized standing in the regulatory system, even though the actual trades were routed through the main broker.
What “Authorised Person” Means Today
SEBI discontinued fresh sub broker registrations in 2018 and moved the entire model toward the Authorised Person (AP) framework. Under this system, an Authorised Person is not registered with SEBI directly. Instead, the stock broker appoints the individual, partnership firm, LLP, or company as its agent, and the stock exchange approves that appointment. The legal identity of an Authorised Person is tied entirely to the sponsoring broker. There is no separate SEBI license, no independent registration number, and no standalone regulatory recognition apart from the broker relationship.
This shift did not just change terminology; it changed the legal foundation of the role. A sub broker used to have a three-way relationship involving the client, the broker, and SEBI. An Authorised Person operates in a simpler two-party structure: the broker and the AP, with the exchange approving that arrangement rather than SEBI directly registering the individual.
Key Legal Differences
Registration authority: A sub broker was registered with SEBI. An Authorised Person is approved by the stock exchange, based on the broker’s application, without a separate SEBI registration for the individual.
Contractual structure: Sub broker arrangements often involved a tripartite agreement connecting the client, the sub broker, and the main broker. In the AP model, the agreement is bilateral, signed only between the stock broker and the Authorised Person. There is no requirement for the client to be a party to that agreement.
Independent standing: A sub broker carried a degree of independent regulatory recognition. An Authorised Person has no independent standing outside the sponsoring broker; if the broker relationship ends, the AP’s approval effectively ends too, since the recognition was never separate from that relationship.
Handling of client money: Under the AP framework, all client funds and securities must move through accounts held in the name of the trading member (the broker), never through the Authorised Person’s own accounts. This rule is strict and is meant to prevent APs from holding or routing client money independently, reducing the risk of misuse.
Remuneration and client charges: An Authorised Person is compensated only by the stock broker, typically through revenue sharing or commission. Charging clients directly for services, outside what the regulatory structure permits, is not allowed. This was also broadly true for sub brokers, but the AP model makes the restriction more explicit and ties it firmly to the exchange-approved agreement.
Compliance responsibility: Because an AP has no separate registration, day-to-day compliance obligations, reporting, and regulatory accountability rest more heavily on the sponsoring broker. The broker is responsible for the conduct of its Authorised Persons in a way that is more direct than the older sub broker structure implied.
Why the Terms Are Still Used Interchangeably
Despite the legal shift, the phrase “sub broker” has not disappeared from common use. Many clients, and even some professionals, still use it because it describes the same basic business function: someone who brings in clients and supports them on behalf of a bigger broker. Marketing materials, local advertisements, and everyday conversations often use “sub broker” simply because it is more familiar and easier to understand than “Authorised Person.” Functionally, the day-to-day work looks similar. Legally, though, only “Authorised Person” reflects the current SEBI and exchange framework.
Final Word
If you are entering this business today, your official designation will be Authorised Person, not sub broker, even if people around you keep using the older term. Understanding this distinction is not just a technical detail. It affects how your agreement is structured, how client funds must be handled, who you are accountable to, and where your legal standing actually comes from. Knowing the difference helps you operate correctly, explain your role accurately to clients, and stay aligned with current SEBI and exchange regulations.
