Experience is necessary to work as a Stock Broker. Stock brokers can win or lose a lot of money in a day and this will have a huge impact to investors or clients. Having enough experience in the industry will give you an edge in managing your own stock broking business. You can also work for another stock broker when you're still trying to gain experience. This is also an excellent way to meet a lot of potential investors.
To start your own Stock Broking Business, you should be a registered broker. The tests will be divided into seven series and you will need to pass them all. If you still haven't taken the test, you can team up with a registered broker so that you can open a new business. The registered broker will then become your partner. In a stock broking business, you can remain as a broker or you can also become a dealer. You will be the one to buy and sell securities. As a dealer, you will own stocks and you will sell them as well. Most of today's stock broking businesses are both brokers and dealers.
I. Registration of Stock Brokers
A broker is none other than a commission agent who transacts business in securities on behalf of his clients who are non-members of a stock exchange . Thus, a non-member can purchase and sell securities only through a broker who is a member of the stock exchange. To deal in securities on recognized stock exchanges, the broker should register.
A stock broker must possess the following qualifications to register as a broker:
i. He must be a citizen with 21 years of age.
ii. He should neither e a bankrupt not compounded with creditors.
iii. He should not have been convicted for any offence, fraud.
iv. He should not have engaged in any other business other than that of a broker in securities.
v. He should not be a defaulter of any stock exchange.
vi. He should have completed 12th standard examination.
Apart from individuals, corporate and institutional members can also become brokers. Brokers will be selected by the selection committee of the stock exchange on the basis of their qualifications, experience, financial status, their performance in the written test, interview etc.
II. Registration Procedure
The prospective broker must apply through the stock exchange of which he is a member .
The stock exchange should forward the application within 30 days of receipt of the application .
After going through the application the security exchange board may call for additional information or clarifications if necessary regarding the dealings in securities. They may also request the applicant to appear before it for personal representation.
After ascertaining whether the applicant is eligible to be admitted as a member and whether he has the necessary infrastructure facilities, they may grant a certificate to the stock broker. The stock exchanges concerned will be duly informed of the same.
The certified stock broker must abide by the prescribed code of conduct .
The stock broker has to pay the prescribed registration fees .
The registration of a broker will be suspended if the broker violates and provisions of the rules and regulations of the exchange and if he does not follow the prescribed code of conduct .
The registration will be cancelled if the broker is convicted of a criminal offence or guilty of fraud or if he repeatedly violates the provisions of the rules and regulations of the stock exchange or the prescribed code of conduct.
Every stock broker has to maintain a minimum amount of deposit called security deposit or base minimum capital with the stock exchange .In addition to the above, every broker has to maintain additional capital depending upon his business volume not exceeding 8 percent of his gross outstanding business in the exchange including the security deposit.
III. Code of Conduct for Stock Brokers
To discharge the duties on the best interest of investors and other stock brokers, a code of conduct has been prescribed for brokers in accordance with the statutory requirements. They have been briefly summarized below:
A stock broker must honestly and promptly execute all orders for buying and selling of securities of the best possible market price. He must make prompt payment to his clients in the case of sales and prompt delivery in the case of purchases.
He should not discriminate small investors against big investors .
He must issue a contract note for all transactions as specified by the stock exchange without any delay .
He must maintain complete secrecy of his client s personal investments and other information of a confidential nature.
He should not induce or initiate purchases or sales just for the sake of his brokerage or commission.
He should not give any false or misleading information with a view to encouraging purchases or sales and thereby getting his commission.
He should not entertain those clients who have failed to carry out their commitments in respect of securities with other stock brokers.
The capacity in which he is acting must be duly informed to his client . In other words, he must disclose whether he is acting as a principal or as an agent. In all cases, he must give top priority to his clients interest.
He is not expected to render ay investment advice except under those circumstances which warrant it.
He must possess adequate infrastructure facilities and maintain proper staff to render prompt, efficient and fair services to his clients.
He should not advertise his business publicly except when it is permitted by the stock exchange.
He should not adopt any unfair practices with a view to attracting clients from other brokers.
He should not knowingly and willfully deliver documents which constitute bad delivery .
He should not fail to submit the necessary returns to the stock exchange as and when they have to be submitted as per the statutory regulations. These returns should not contain any false or misleading information.
He must exercise reasonable care, diligence and skill in the discharge of his functions as a broker .
He must maintain high standards of integrity and honesty, promptness and fairness in the conduct of all his business.
Above all, he should not indulge in fraudulent or deceptive transactions or spread rumor with a view to creating a false market and making personal gains .
He must maintain proper books of account, records and documents as required by the various regulating authorities.
He must produce the above books and records for inspection whenever an inspection is undertaken as per the provisions of exchange.
IV. Functions of Stock Brokers
The following are the important functions generally performed by all the brokers.
First of all, a trading broker has to enter into an agreement in the specified format with his client before accepting any orders on his client's behalf. The said agreement has to be executed on non-judicial stamp paper, duly signed by both the parties on all the pages. In addition to the agreement, the broker shall seek other information about the client in the client registration form. The information may relate to :Investors financial profile.
Investors risk profile and risk taking ability.
Investors social profile.
Investors identification details.
Family, income age and employment details .
Details of investments in other assets.
Financial liabilities. The broker has to obtain recent passport size photos in the case of individual clients and of all partners in the case of partnership firms. In the case of corporate customers, he has to obtain the photos of dominant promoters. The broker should not forget to take proof of identification of the client. It is also mandatory to give a unique code for each client for easy identification. There is no limit on the maximum number of clients for a broker.
Obtaining margin money It is also mandatory for the broker to collect margins from his clients in all cases where the margin in respect of the client in settlement, would work out to be more . The margins so collected must be kept separately in the clients bank account and it must be utilized for making payment or settlement in respect of that client.
Execution of orders The important function of a broker is to execute his client orders swiftly and carefully. Hence, he has to obtain clear cut confirmed order instructions from the clients to that the necessary orders may be placed on the system. To execute a trade order for a client, he broker must obtain specific instructions as to: The name of the company whose securities have to be bought or sold .
The precise number of shares required .
The limit or market price conditions .
Supply of necessary slips On execution of the trade, the broker the trading member should inform his client the order number. He should also give copies of the trade confirmation slip, modification slip, cancellation slip to enable the client to take necessary follow up action.
Issue of contract note The broker should then issue a contract note to his clients for all trades, whether for purchase or sale of securities, executed with all relevant details . This contract note should be issued within 24 hours of the execution of the contract. It should be duly signed by the broker or his authorized signatory or client attorney. Every broker is expected to maintain the duplicate copy of each contract not issued for five years.