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Capital Market and Securities Laws · Securities Market Intermediaries

Stock Brokers and Sub-Brokers under SEBI Law

Updated 11 October 2026 · Fact-checked

A stock broker is an intermediary who buys, sells or deals in securities for clients and must hold a SEBI certificate of registration under Section 12 of the SEBI Act, 1992. The sub-broker category has been replaced by authorised persons. To answer questions, state the provision, apply it to the facts, and conclude.

Understand Stock Brokers and Sub-Brokers

A stock broker is a market intermediary who executes trades in securities on a stock exchange for investors. Investors cannot trade on the exchange directly, so the broker is the link between them and the market. Because brokers handle client money and securities, the law controls who may act as one.

The main control is registration. Section 12(1) of the SEBI Act, 1992 says no stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or similar intermediary shall buy, sell or deal in securities except under, and in accordance with the conditions of, a certificate of registration obtained from SEBI under the regulations. Registration is not a one-time formality. The certificate comes with conditions, and breaking them can cost you the certificate.

A sub-broker was an agent of a registered stock broker who connected investors to the broker. The sub-broker had its own SEBI registration. SEBI has since replaced this category with authorised persons, who are appointed by the stock broker and approved by the stock exchange. The broker stays responsible for their acts. In exams, write that the sub-broker framework is replaced by authorised persons, and do not describe sub-broker registration as the current route.

SEBI also regulates brokers by conduct. The stock broker regulations carry a code of conduct covering matters such as integrity, due skill and care, fair dealing with clients, avoiding manipulation, and keeping records. The detailed registration conditions, fees, eligibility and capital adequacy norms sit in the regulations, because Section 30(2)(d) lets SEBI make regulations on the conditions for a certificate, the fee and the manner of suspension or cancellation.

Finally, there is enforcement. Section 12(3) lets SEBI suspend or cancel a certificate by order, but only after giving the person a reasonable opportunity of being heard. Section 15F lays down money penalties for specific broker defaults.

Key rules to remember

Registration requirement (Section 12(1))
No stock-broker or sub-broker shall buy, sell or deal in securities except under a certificate of registration from SEBI, in accordance with its conditions
Applies to dealing in securities. The certificate is granted under the regulations made under the Act.
Application and fees (Section 12(2))
Application for registration: in the manner and with fees determined by regulations
Details of manner and fees are in regulations, not in the Act.
Suspension or cancellation (Section 12(3))
SEBI may suspend or cancel a certificate by order, after giving a reasonable opportunity of being heard
Natural justice is a mandatory condition. Write it in every answer on this point.
Regulation-making power (Section 30(2)(d))
Regulations may provide for conditions of the certificate, the fee, and the manner of suspension or cancellation under Section 12
This is why eligibility and capital adequacy are in the regulations.
Penalty: failure to issue contract notes (Section 15F(a))
Penalty: not less than ₹1,00,000 but up to ₹1,00,00,000
Applies where a registered broker fails to issue contract notes in the form and manner specified by the exchange of which it is a member.
Penalty: failure to deliver securities or pay (Section 15F(b))
Penalty: not less than ₹1,00,000, up to ₹1,00,000 per day of continuing failure, subject to a maximum of ₹1,00,00,000
Applies where the broker fails to deliver securities or pay the investor within the period specified in the regulations.
Penalty: excess brokerage (Section 15F(c))
Penalty: not less than ₹1,00,000 but up to 5 times the brokerage charged in excess of the specified brokerage
Brokerage above the limit set in the regulations triggers this penalty.

How to solve Stock Brokers and Sub-Brokers questions

Use this method for any question on stock brokers, sub-brokers or authorised persons. It keeps your answer in the provision, facts, conclusion format.

  1. 1Identify what is asked: registration, conduct, a penalty, suspension or cancellation, or the sub-broker versus authorised person position.
  2. 2State the provision in plain words, citing the SEBI Act section: Section 12 for registration and cancellation, Section 15F for broker penalties.
  3. 3Name the detailed source: the stock broker regulations carry eligibility, code of conduct and capital adequacy, made under Section 30.
  4. 4Apply the rule to the facts. Check whether the person was dealing in securities, whether a valid certificate existed, and which default occurred.
  5. 5For penalty questions, pick the correct clause of Section 15F and apply its floor and ceiling.
  6. 6For suspension or cancellation, check that a reasonable opportunity of being heard was given.
  7. 7Close with a clear conclusion in one or two sentences that answers the exact question.

Quickest way: Three-check approach for broker questions

When to use it: Use it when you have limited time and the question is a short case or a short note.

  1. Check 1, registration: was the person dealing in securities without a valid certificate under Section 12?
  2. Check 2, default: which of the three Section 15F defaults applies: contract notes, delivery or payment, or excess brokerage?
  3. Check 3, process: if the certificate is to be suspended or cancelled, was a hearing given?
  4. Write the section, the one-line application, and the conclusion. Stop there.

Common mistakes in Stock Brokers and Sub-Brokers

  • Saying sub-brokers are still registered separately with SEBI as the current framework.

    Older notes and Section 12 still mention sub-brokers.

    Fix: Section 12 text still lists sub-brokers, but state that the sub-broker category is replaced by authorised persons appointed by the stock broker and approved by the exchange.

  • Mixing up the three penalty clauses of Section 15F.

    All three have the same minimum of ₹1,00,000 and look alike.

    Fix: Remember the triggers: (a) contract notes, (b) delivery or payment, with a per-day element, (c) excess brokerage, with a five-times element.

  • Forgetting that suspension or cancellation needs a hearing.

    Students focus on SEBI's power and skip the proviso.

    Fix: Always add that no order under Section 12(3) is made without a reasonable opportunity of being heard.

  • Putting detailed eligibility and capital adequacy norms inside the SEBI Act.

    Students blend the Act and the regulations.

    Fix: Say the Act requires registration, and the conditions, fees and capital norms come from regulations made under Section 30.

  • Stating Section 15F(b) as a flat penalty.

    The per-day wording and the cap are easy to skip.

    Fix: Write the full rule: minimum ₹1,00,000, up to ₹1,00,000 per day of continuing failure, maximum ₹1,00,00,000.

Worked examples

Example 1

Rohan Securities, a registered stock broker and a member of an exchange, does not issue contract notes to its clients in the form and manner specified by the exchange. What action can SEBI take?

Show the solution
  1. Provision: Section 15F(a) of the SEBI Act, 1992 applies to a registered stock broker who fails to issue contract notes in the form and manner specified by the exchange of which it is a member.
  2. Facts: Rohan Securities is registered and is an exchange member, and it did not issue contract notes in the specified form and manner.
  3. Penalty range: the penalty is not less than ₹1,00,000 but may extend to ₹1,00,00,000.
  4. Process: for any suspension or cancellation, Section 12(3) needs a reasonable opportunity of being heard.

Answer: Rohan Securities is liable to a penalty under Section 15F(a) of at least ₹1,00,000 and up to ₹1,00,00,000. SEBI cannot suspend or cancel its certificate without first giving it a reasonable opportunity of being heard.

Example 2

A broker charges a client brokerage above the limit in the regulations. Which provision applies, and what is the penalty range? Also state whether SEBI can cancel the broker's certificate straight away.

Show the solution
  1. Provision: Section 15F(c) deals with charging brokerage in excess of that specified in the regulations.
  2. Penalty: it is not less than ₹1,00,000 but may extend to five times the amount of brokerage charged in excess of the specified brokerage.
  3. Cancellation: Section 12(3) allows suspension or cancellation by order, in the manner set by regulations.
  4. Condition: the order cannot be made unless the broker has been given a reasonable opportunity of being heard.

Answer: Section 15F(c) applies, with a penalty of at least ₹1,00,000 and up to five times the excess brokerage. SEBI cannot cancel the certificate straight away. It must first give the broker a reasonable opportunity of being heard under Section 12(3).

Exam tips

  • Write section numbers for registration (12) and broker penalties (15F). Examiners reward the provision-facts-conclusion structure.
  • Learn the Section 15F numbers exactly: ₹1,00,000 minimum, ₹1,00,00,000 cap, ₹1,00,000 per day in clause (b), and five times excess brokerage in clause (c).
  • For sub-broker questions, state the replacement by authorised persons and mention that the broker stays responsible.
  • In short notes on the code of conduct, group points under integrity, due skill and care, client dealing and record keeping, rather than listing clause numbers you may misquote.

Practice questions from Securities Market Intermediaries

Stock Brokers and Sub-Brokers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Stock Brokers and Sub-Brokers: frequently asked questions

Is registration with SEBI compulsory for a stock broker?

Yes. Section 12(1) of the SEBI Act, 1992 bars a stock broker from buying, selling or dealing in securities except under a certificate of registration from SEBI. The broker must also follow the conditions of that certificate.

What is the difference between a stock broker and a sub-broker?

A stock broker is a member-linked intermediary that executes trades. A sub-broker acted as the broker's agent who brought in investors. The sub-broker category has been replaced by authorised persons appointed by the broker.

Who is an authorised person?

An authorised person is an agent appointed by a stock broker, with approval of the stock exchange, to provide access to trading. The broker remains responsible for the authorised person's acts.

Can SEBI cancel a stock broker's registration?

Yes. Under Section 12(3) SEBI may suspend or cancel the certificate by order in the manner set by regulations. It must first give the person a reasonable opportunity of being heard.

Where are eligibility and capital adequacy norms for brokers found?

They are in the stock broker regulations, not in the Act. Section 30(2)(d) empowers SEBI to make regulations on the conditions for a certificate, fees, and suspension or cancellation.