Client and Broker Relationship

CLIENT –BROKER RELATIONSHIP

Presented by-GAURAV YADAV RAHUL SINGH RISHABH SHARMA SANDEEP SINGH

• Introduction about client and broker

• Types of broker• Nature of Work• Regulation for brokers• Eligibility Criteria for Membership• Conceptual framework between client and broker• Admission Procedure for New Membership

• Role & function of brokers• Responsibility of broker• Worker ethics for broker • Process of order execution

Agenda

•A stock broker is an intermediary who arranges to buy and sell securities on the behalf of clients (the buyer and the seller).

•According to SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, a stockbroker is member of a stock exchange and requires to hold a certificate of registration from SEBI in order to buy, sell or deal in securities.

Introduction

Broker

Full Service Broker

AdvisoryDiscretionar

y Management

Discount Brokers

Types of brokers

Full Service Broker

•Advisory

▫Expensive

▫Have to maintain good relationship and contact

▫Provide financial consultant and financial advisory services

▫Range of products to buy E.g. bonds, MF, ETF, CD, etc.

•Discretionary Management

▫Expensive

▫Have to maintain good relationship

▫Take complete control over the investment

▫Takes investment decision on behalf of customers and provide only periodical statement to the customers

Discount Brokers

▫Low cost

▫Only buying and selling of securities

▫No range of services

▫No assistance

•Securities sales representatives

•Securities traders

•Securities brokers

•Securities analysts

•Broker firms

Nature of work

SEBI checks out that the applicant….

1. Is eligible to be admitted as a member of a stock exchange

2. Has the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge his activities

3. Has past experience in the business of buying, selling or securities

4. Could pay the amount of fees for registration in the prescribed manner

Regulation for brokers

The persons eligible to become broker are:

1. Individuals;

2. Partnership firms registered under the Indian Partnership Act, 1932;

3. Institutions, including subsidiaries of banks engaged in financial Services;

4. Body corporate including companies as defined in the Companies Act,1956.

THE CONCEPTUAL FRAMEWORKBETWEEN CLIENT AND BROKER

The broker-client conceptual framework contains two distinct phases. The first is known as the information-gathering phase and the latter, the formal relationship phase.

CLIENT - BROKER CONCEPTUAL FRAMEWORK

INFORMATION GATHERING PHASE

PRE-RELATIONSHIP STAGE

MARKTEKING

STAGE

FORMAL TRADING RELATIONSHIP PHASE

PRE-RELATIONSHIP STAGE

Like other professional services, new clients are obtained principally by referralsor recommendations from an existing client or by personal initiation or networking. Thisstage is also described as the pre-relationship phase.

MARKTEKING STAGE

This stage can appear very informal, and the prospective client organisation is referred to as a‘prospect’. The initial programme design is discussed with the prospect. Factors include business type, size of the organisation and its risk profile. The ‘prospect’ financial and operational information's are reviewed. Amongst these information are gross profit, turnover and wage roll projections.

FORMAL TRADING RELATIONSHIP STAGE The formal relationship is seen to commence

at this stage. This is termed "the development stage." The development stage includes the time period of the first two to six months of the developing relationship between the insurance broker and its respective client. Here the broker is given specific instructions to proceed with the tendered proposal and it is at this point that any indicative changes to the programme and premium financing arrangements are agreed.

Admission procedure for new membership

•Main roles broker perform

▫Buying and selling of shares and other securities

 ▫Providing advisory services

▫Provide margin

▫Brokering other securities

Roles & functions of broker

• Broker-Clients function

• Client Registration Documents

Co-Contract documents

Know Your Client (KYC) document

Member Constituent Agreement (MCA) document

• Contract note

• Unique Client Code (UCC) allotment

• Segregation of Bank Accounts

• Segregation of DEMAT (Beneficiary) Accounts

• Security

• Transaction Cost

• Deposit and Withdrawal

• Trading Platform

• Customer Service

• News about market

Responsibility of broker

• Duty of Fair Dealing

• Duty of Best Execution

• Customer Confirmation

• Restrictions on Insider Trading

• Duty of Loyalty

• Authorization for Trading

Worker ethics for broker

Process of order execution

Client

Broker

Stock exchange

Pull account of broker

DMAT of investor

Quiz – Time Q. Broker acts as Advisor.

A. True.

Q. It is possible that a broker can trade on behalf of the customer without customer’s consent.

A. False.

Q. SEBI provides a certificate of registration to the Trading Members of NSE .

A. True

Q. Client refers to Issuer only.

A. False.

Q. An individual cannot become a broker, only a firm can.

A. False.

Thank you