Authorised persons are vital to the capital market. They operate both on behalf of the stockbrokers and clients to facilitate share trading and building business book for the broking house. They help their clients to find the best investment opportunities and extend personalised trading solutions to each of them. But, can they trade for themselves? It is a common question, asked by our authorised agents and clients alike. But before we answer the question, let us look at some of the other aspects of an authorised person’s business.
Authorised persons work under broking houses as a part of their extended authorised person network. They are the registered personnel authorised to offer share trading services to any investor interested in investing in the stock market. Often the business model that exists between the stockbroker and the authorised person is a franchise model, which requires the authorised person to make a hefty initial investment in procuring the authorised person status with the stockbroker. They also need to invest in renting office space and infrastructure necessary to run the business.
Authorised persons are required to enrol themselves with SEBI to be able to perform buying, selling, and dealing with securities activities if you want to update yourself on authorised person’s enrolment policy checkout, A Complete Guide to Enrol an Authorised person.
Now, to complete the registration process, you would need to pay some fees to the regulator and obtain membership number. But all these efforts are invested in building a business line that will only earn you a commission. So, a question arises that, under what circumstances, can an authorised person trade for himself?
An authorised person can trade for himself, but with some restrictions. The authorised person can use the same credentials that he has obtained as a registered member of SEBI. But his account will be subjected to extensive monitoring.
Can an authorised person trade for himself?
Authorised persons can buy and sell assets posing as a client. And, when they trade for themselves, they enjoy certain advantages over other investors, such as
– He may enjoy the benefits of being an insider of the trade. Since he can access the research reports of the stockbroker and receive market news first-hand, he can use those for better profitability
– He can use advisory services, recommendations, and tips to position himself ahead of other investors
– He can earn a commission in addition to the profit from investment
– He can leverage his knowledge of the latest tools and techniques in finding better investment opportunities
– With his expertise and access to different asset classes, he may feel more in control in diversifying the portfolio and need not seek service of another stockbroker
All these advantages that an authorised person enjoys while trading for himself also raise a series of concerns. As a result, an authorised person’s trading account is often subject to intense scrutiny to prevent any inappropriateness.
The laws might not prevent authorised persons from trading for themselves, but it often leads to a clash of interest. When they trade for themselves, they become profit-oriented and give less attention to the stockbroking business. It becomes more of an ethical concern than technical. Under such circumstances, he might fail to fulfil the responsibilities towards the stockbroker and his clients, which will impact the overall business.
Authorised persons are essential players in the market. If the authorised person wants to trade for himself, he can do it after making sure that he does not fail in his commitment towards stockbroker and his clients.
If you want to become an authorised person, we can assist you in your career journey. Take the next step towards your future with Angel Broking – the number one stock broking house with three decades of proven track record.