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14-Jun-2024

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Who are stock brokers?

An investor cannot directly buy or sell shares on a stock exchange. Registered members of a stock exchange are called stock brokers. They trade on an investor’s behalf. They are either an independent service provider, or employed at a brokerage firm. It is ideal for them to have the required qualification and experience in the field of finance. A broker in the stock market scenario is also called a Trading Member.

A stock broker is familiar with the formalities of market and hence, you may depend on their judgment and knowledge. They can enable you to make the right decisions in the market.

Here’s what a broker can do for you:

  1. Guide and representative you at the stock market.
  2. Buy and sell stocks.
  3. Provide right information about the investment options available at the stock market.
  4. Provide correct information on shares and their prices obligatorily.
  5. Inform you about appropriate market moves.

In case you are dissatisfied with the services of your broker, you may file a complaint with SEBI under the Arbitration Laws.

Investing in the share market means buying stocks of a company. If you want to buy shares, you must first approach a SEBI-registered member, or broker, of a stock exchange. You need to then register as an investor before you begin investing; to do so, follow these steps:

  • Find a SEBI Registered Member : Click here
  • Find out which stock exchange they are registered with. Most brokers hold a membership of both exchanges.
  • Fill the KYC and Agreement forms and ask for copies too. Click here for a sample of the form.

A trading account is a bridge between your Demat and bank account. It is opened with a stock broker. When an investor buys a certain number of shares, the first step is to transfer the amount from the bank account to the trading account. After the money is credited, the transaction is initiated.

Similarly, when an investor sells a certain number of shares, the amount of the transaction is credited to the trading account.

Here are a few noteworthy points about a trading account:

  • It takes nearly 2-3 working days for the trading account to reflect a transaction.
  • Investors can create multiple Demat accounts and trading accounts.
  • It is not compulsory to open both these accounts with the same broker or bank.
  • Investors can open your own Demat account if the broker does not have the facility to do so.
  • Investors must ensure that the form they submit to open their own account mentions their account details correctly.

The Demat account is where your securities will be held digitally. You will need to furnish the following documents to open a new Demat account:

  • A passport-size photograph.
  • A copy of your PAN card.
  • Identity proof such as Aadhaar card, passport, voter ID card, driving license, PAN card or any other authorised photo identity.
  • Address proof such as ration card, passport, voter ID card, driving license, bank passbook, electricity bill, self-declaration from the High Court or Supreme Court, identity card or address proof given by recognised authority.

After you submit the required documents and they are verified, a Demat account is created.

Furthermore, a trading account is simultaneously created with the Demat account. You will need to submit the following documents to start a trading account:

  • A passport-size photograph.
  • A copy of your PAN card.
  • Identity proof such as Aadhaar card, passport, voter ID card, driving license, PAN card or any other authorised photo identity.
  • Address proof such as ration card, passport, voter ID card, driving license, bank passbook, electricity bill, self-declaration from the High Court or Supreme Court, identity card or address proof given by recognised authority.

The KYC, or Know Your Client, application form is an agreement between you and the broker. You have to provide them with the necessary information, which they will validate. Some important regulations that are applied to the KYC form that you must consider are:

  • Common KYC form for all investment types registered at the stock exchange.
  • Similar set of documents for KYC of all kinds of investment types.
  • There are two different forms for individual and non-individual investors.
  • Complete the KYC form in all respects and strike-off the blank fields.
  • Do not sign an empty form.
  • Cross out any page that you leave blank.
  • Know the documents required to be submitted to your broker.

The following documents must be attached with a KYC application form:

  • Identity proof such as Aadhaar, Passport, Voter ID, Driving License, PAN or any other authorised photo identity.
  • A latest passport-size photograph.
  • Address proof such as Ration Card, Passport, Voter ID, Driving License, Bank Passbook, Electricity Bill, self-declaration from High Court or Supreme Court, or any other identity card, or Address Proof, issued by a recognised authority.
  • Photocopy of your PAN card.

After you successfully submit the above form and documents, your broker will open a trading account in your name. You will then get a unique identity number known as a Client Code. You must use this quote for every trade that is carried out on your behalf by the broker.

For investing in India you would need to be registered as an FPI with SEBI, the regulator. The requirements for registration and commencement of trading are detailed as under:

1. Appoint a Legal Representative & Choose a DDP

Appoint a legal representative in India to fill out the forms required by the regulatory authorities. The role of legal representative can be played by any financial institution authorized by the Reserve Bank of India.

Choose at DDP to get registered as FPI. The following is the link of List of DDPs:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1401427321828.pdf

2. Appoint a Tax advisor

A tax advisor will help you comply with all Tax obligations that will arise from your activities in India.

3. Appoint a Domestic Custodian

Appoint a domestic custodian and before making any investments in India, enter into an agreement with the domestic custodian providing for custodial services in respect of securities.

Domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities.

4. Appoint a designated Bank

Once you are granted registration as an FPI, you will need to appoint a Designated Bank.  The Designated Bank will open and maintain a foreign currency account and/or a Non Resident Special Rupee Account for you.

Designated Bank means any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FPIs.

5. Appoint a trading member

A Trading member will execute trades for the FPI. An FPI can have multiple TM’s.

6. Appoint a clearing member

Clearing member does the confirmation of trades. Clearing through single clearing member. CM–CP Agreement executed with the CM to get CP Code. CP code facility (can use existing CP code) or signing of agreement.

7. Appointment of a Compliance Officer

Every FPI is required to appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the Board or the Central Government.

Indian Capital Markets are regulated and monitored by the Ministry of Finance, The Securities and Exchange Board of India and The Reserve Bank of India.

The Ministry of Finance regulates through the Department of Economic Affairs - Capital Markets Division. The division is responsible for formulating the policies related to the orderly growth and development of the securities markets (i.e. share, debt and derivatives) as well as protecting the interest of the investors. In particular, it is responsible for

  • institutional reforms in the securities markets,
  • building regulatory and market institutions,
  • strengthening investor protection mechanism, and
  • providing efficient legislative framework for securities markets.

The Division administers legislations and rules made under the

  • Depositories Act, 1996,
  • Securities Contracts (Regulation) Act, 1956 and
  • Securities and Exchange Board of India Act, 1992.
The Regulators


Securities & Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992 and is the principal regulator for Stock Exchanges in India. SEBI’s primary functions include protecting investor interests, promoting and regulating the Indian securities markets. All financial intermediaries permitted by their respective regulators to participate in the Indian securities markets are governed by SEBI regulations, whether domestic or foreign. Foreign Portfolio Investors are required to register with DDPs in order to participate in the Indian securities markets.

Click here for more information


Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is governed by the Reserve Bank of India Act, 1934. The RBI is responsible for implementing monetary and credit policies, issuing currency notes, being banker to the government, regulator of the banking system, manager of foreign exchange, and regulator of payment & settlement systems while continuously working towards the development of Indian financial markets. The RBI regulates financial markets and systems through different legislations. It regulates the foreign exchange markets through the Foreign Exchange Management Act, 1999.

Click here for more information


National Stock Exchange (NSE) – Rules and Regulations

In the role of a securities market participant, NSE is required to set out and implement rules and regulations to govern the securities market. These rules and regulations extend to member registration, securities listing, transaction monitoring, compliance by members to SEBI / RBI regulations, investor protection etc. NSE has a set of Rules and Regulations specifically applicable to each of its trading segments. NSE as an entity regulated by SEBI undergoes regular inspections by them to ensure compliance.

Click here for more information

Updated on: 17/01/2023