Role and Functions of Stock Brokers

According to the Concise Law Dictionary, a broker is a middleman or agent who handles tasks for other people in exchange for a fee based on the value of the transfer. A broker might negotiate the acquisition or sale of stocks, bonds, commodities, or other types of property on their behalf. Brokers are therefore those who deal in shares and whose line of work involves finding subscribers for shares. They act as middlemen between investors and stock exchanges in the secondary market and are essentially intermediaries. By transferring the stock and shares, they reflect the transaction. They deliver investor money to the stock exchanges. Stock brokers and sub brokers are under the heading of intermediaries.

Brokers are involved in secondary markets where securities like stocks and bonds are bought and sold. There are many other ways to trade, including ongoing auctions and broker purchases from and sales to dealers on stock exchanges. The qualifying conditions and the level of government involvement in the management of the stock exchanges vary from nation to nation. The Securities Contract (Regulation) Act of 1956 recognises stock exchanges as the sole venues for the dealing of securities.The majority of stock exchanges in India are mutually owned, which is advantageous in terms of tax breaks and regulatory compliance. The exchanges are owned, controlled, and managed by the trading members who also offer brokerage services. Only brokers have access to an exchange’s trading platform. Brokers may freely enter and depart a demutualized exchange. Either on his own account or on behalf of his clients, the broker makes deals in exchanges.

The Securities and Exchange Board of India Act, 1992, sets forth the rules that apply to the Indian stock markets. Under the Securities Contracts (Regulation) Act of 1956, the stock exchanges are under the general supervision of the Securities Exchange Board of India, which was established by the SEBI Act of 1992.With the dual goals of regulation and development, SEBI was established on February 21st, 1992. The current broker regulations are largely enough to safeguard investors’ needs.

Any person, other than a bank, engaged in the business of conducting securities transactions for the benefit of others is referred to as a broker according to the Securities Exchange Act of 1934. [2] In other terms, brokers are anyone who conducts securities transactions on behalf of others. They are a subclass of dealers. Under Section 12 of the SEBI Act, 1992, a broker is a registered intermediary who is connected to the securities market.

Types of Stock brokers:

Brokers of Institutional Stock
Large institutions and businesses are the clients of institutional stock brokers, who trade assets on their behalf. They provide institutional investors with services like investment banking, securities services (IPO or secondary offerings), consulting services, and brokerage services.

Personal Stock Brokers
Small businesses and individual investors can obtain investment banking, advice services, and brokerage services from personal stockbrokers.

Functions of stock broker
1. Consultative Services

Stock market brokers are knowledgeable about how the market operates, how stocks perform, market trends, and other related topics. Additionally, they have access to the research databases and data bases of the brokerage businesses with which they are affiliated. As a result, they are able to offer their clients exceptional investment advice.

2. Limited-scale banking services: Limited banking services including interest-bearing accounts, electronic deposits, and withdrawals are permitted for stock market brokers to offer. By paying a little brokerage fee, the clients can use the stock brokers’ banking-related services.

3. Other investments: In addition to stocks, many brokers also deals in other types of assets, including commodities, future options, exchange-traded funds, mutual funds, and bonds. In connection to all these, they also offer financial advice to their clients.

The Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992, and the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, are the legal documents that govern stock brokers in India. According to the SEBI Rules, a “stock broker” is a participant in a stock exchange. When dealing with securities on behalf of a client, a stock broker works as that client’s agent. Although a stock broker is technically an agent, he is regarded as a principal for the purposes of carrying out the contract on his part in the market and with the customer. He occupies a rare dual responsibility role. He may demand a commission from his customer. He doesn’t just carry out transactions on behalf of investors; he also provides value management, such as online initial public offerings, portfolio management, asset allocation, financial planning, insurance services, and tax planning. The Orissa High Court ruled in Rajendra Prasad Bagaria v. Bhubaneshwar Stock Exchange Association Ltd. that stock brokers are subject to SEBI regulations regarding their registration and operation as well as the bye-laws of the different stock exchanges.

A stock broker and their customer have a principal-agent relationship. The agreement between a stock broker and an investor must be in writing, according to SEBI . It must be completed on 20 rupee stamp paper. Every stock broker can be regarded as a del credere agent due to the nature of trading activities at the NSE and BSE. Between the two, a bailor-bailee connection also occurs.  The relationship is also believed to have a fiduciary component. However, as stated in the SEBI Code of Conduct for Brokers, the broker is required to undertake due care in the performance of his duties.In Sharedeal Financial Consultants (P) Ltd. v. SEBI[48], it was determined that the standard of “due diligence” required was not that of a common or prudent person, but rather that of a stock broker, who would be expected to carry out his obligations to his client with competence and reasonable care. When a client transacts through a stock exchange, he is entitled to the best price currently in effect for the trade, the money or shares on time, a contract note from the broker confirming the trade and outlining the pertinent trade details, good delivery, and the right to insist on the correction of any poor delivery.When the client does not pay him within two days after the issuance of the contract note, he shall be free to sell or buy the securities and terminate the contract.

Before stock brokers agree to operate on behalf of their clients, SEBI has given mandatory standards that must be complied with. Confidentiality is a crucial obligation a stock broker has to his client. According to SEBI regulations, the broker is not permitted to reveal to anyone his clients’ financial or personal information. In a similar vein, the broker is expected to make sure that he keeps clients’ funds in separate accounts and makes timely payments to them.


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