An authorised person agreement is an important document that forges a partnership between the broking house and the authorised person. It lists the terms and conditions between the two parties, describe rules and regulation that each must follow, and their respective rights. It states the terms that authorised persons need to follow to maintain a high level of transparency to avoid pitfalls.
An authorised person cannot start operating until the agreement is drawn, and registration is complete with SEBI. So, in case you want to know what it states, we, in this article, has described some of the essential clauses of the authorised person agreement of which you must take note.
Meanwhile, when we are discussing what an authorised person agreement is, you may also want to understand how to enrol yourself or the code of conduct of authorised persons and stockbrokers.
Clauses describing an authorised person’s benefits
An authorised person agreement is a business document outlining the rights and interests of an authorised person while entering in a partnership with a stockbroker. According to such agreement, an authorised person is entitled to the following rights,
– It prohibits stockbrokers from indulging in anything unfair act that may cause the client to dissociate from the authorised person
– In case of any dispute, both the parties will have to abide by the rules of the stock exchange
– If the problem cannot get solved by the officials in the stock exchange, it will get referred for arbitration
– Either party can discontinue the agreement. In case the stockbroker decides to terminate the agreement, it needs to update the exchange accordingly and clear any pending fees with the regulator
– A stockbroker cannot transact a higher amount than agreed between it and the authorised person on behalf of the latter
Authorised person’s code of conduct
In the Authorised person agreement, it also describes the duty of an authorised person towards the stockbroker, which has employed him. Since it is a business agreement, it clearly defines the code of conduct the authorised person must follow to keep his association with the stockbroker. According to the authorised person agreement,
– There must be a consensus between a stockbroker and authorised person regarding commission pay-out
– The document caps the maximum percentage of commission based on the value of the transaction carried out by the authorised person
– An authorised person must maintain a detailed record of all the transactions carried out by him and update stockbroker about it
– The agreement prevents authorised persons from material modification on its status or changing the constitution without the consent of the stockbroker. It is an important clause that authorised persons need to acknowledge to get approval from SEBI
– Authorised persons can carry out security dealing only on behalf of the broking house
– The authorised person will require stockbroker’s approval to issue any document including, bills, confirmation memo, statement of funds, securities, and more
– The authorised person will have to furnish, in demand, all bank transactions and DP statement details to stockbroker
– The agreement also approves internal control by a stockbroker. An authorised person must allow any time scrutiny from the stockbroker on authorised person’s records, deposits, client documents, authorised person document, and large volume transactions carried out by him
– In case of complaints from clients, stockbroker can stop paying a commission on the deal to the authorised person till the matter resolves
– Under the agreement, the authorised person is required to display trading member’s display board stating guidelines for the investors including, trading member’s contact details, compliance office, mode of payment, and regulations regarding receiving delivery of securities
Terminating an authorised person agreement
Either party can terminate the agreement without citing any reason. However, if the stockbroker terminates the agreement, it must collect the registration certificate from the authorised person and submit it to SEBI along with pending fees and arrears. Simultaneously, the stockbroker must also inform all investors through a newspaper announcement regarding dissolving the agreement.
The authorised person agreement describes the benefits enjoyed by both the parties and states the limitations of each. In terms of maintaining the credibility of the capital market, an authorised person agreement is a critical document. It is the Magna Carta that ensures that a partnership is established between the stockbroker and authorised persons based on integrity and transparency.
If you are interested in commencing a journey as an authorised person, we can assist you in fulfilling your career goals. Angel Broking is one of the top full-fledged stock broking houses in India with more than 1 million active clients.