Authorised Persons Framework — Appointment, Eligibility and Broker Liability

SEBI's framework for Authorised Persons governs who can be appointed, the eligibility criteria, and the liability of the stock broker for all acts of omission and commission of the authorised person. The framework provides the minimum requirements, and stock exchanges and stock brokers may prescribe additional requirements as they deem appropriate. This article explains the complete framework, including obligations of brokers and exchanges.

Who Is an "Authorised Person"?

Any person — individual, partnership firm, LLP or body corporate — who is appointed as such by a stock broker (including trading member) and who provides access to trading platform of a Stock Exchange as an agent of the stock broker.

Eligibility Criteria

Individual

An individual is eligible to be appointed as authorised person if he:

• Is a citizen of India.
• Is not less than 18 years of age.
• Has not been convicted of any offence involving fraud or dishonesty.
• Has good reputation and character.
• Has passed at least 10th standard or equivalent examination from an institution recognized by the Government.

Partnership Firm, LLP or Body Corporate

A partnership firm, LLP or a body corporate is eligible to be appointed as authorised person:

• If all the partners or directors, as the case may be, comply with the requirements for individuals.
• The object clause of the partnership deed or of the Memorandum of Association contains a clause permitting the person to deal in securities business.

Infrastructure

The person shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the activities on behalf of the stock broker.

Certification

The approved users and/or sales personnel of Authorised Persons shall have the necessary certification of the respective segments at all points of time.

Conditions of Appointment

• Broker Liability. The stock broker shall be responsible for all acts of omission and commission of the authorized person. All acts of omission and commission of the authorized person shall be deemed to be those of the stock broker.

• No Receipt of Money/Securities. The authorized person shall not receive or pay any money or securities in its own name or account. All receipts and payments of securities and funds shall be in the name or account of stock broker.

• Remuneration from Broker Only. The authorised person shall receive his remuneration only from the stock broker and he shall not charge any amount from the clients.

• Single Appointment. A person shall not be appointed as authorized person by more than one stock broker on the same Stock Exchange.

• Partner/Director Restriction. A partner or director of an authorised person shall not be appointed as an authorised person on the same Stock Exchange.

• Written Agreement. The stock broker and authorised person shall enter into written agreement(s) in the form(s) specified by Exchange.

Withdrawal of Approval

Approval given to an authorised person may be withdrawn by the Stock Exchange:

• On receipt of a request to that effect from the stock broker concerned or the authorised person, subject to compliance with the requirements prescribed by the Stock Exchange.
• On being satisfied that the continuation of authorised person is detrimental to the interest of investors or securities market or the authorised person at a subsequent date becomes ineligible.

Obligations of Stock Broker

• Responsibility. The stock broker shall be responsible for all acts of omission and commission of his authorised person(s) and/or their employees, including liabilities arising there from.

• Branch Office Status. If any trading terminal is provided by the stock broker to an authorised person, the place where such trading terminal is located shall be treated as branch office of the stock broker.

• Display of Information. Stock Broker shall display at each branch office additional information such as particulars of authorised person in charge of that branch, time lines for dealing through authorised person, etc.

• Notification of Changes. Stock Broker shall notify changes, if any, in the authorised person to all registered clients of that branch at least thirty days before the change.

• Periodic Inspection. Stock Broker shall conduct periodic inspection of branches assigned to authorised persons and records of the operations carried out by them.

• Client Registration. The client shall be registered with stock broker only. The funds and securities of the clients shall be settled directly between stock broker and client.

• Action on Irregularities. On noticing irregularities, stock broker shall seek withdrawal of approval, withhold all moneys due to authorised person till resolution of investor problems, alert investors, file a complaint with the police, and take all measures required to protect the interest of investors and market.

Obligations of Exchange

• Database. The Stock Exchange shall maintain a database of all the authorised persons including PAN Number, details of the broker, locations of branch, number of terminals, withdrawal of approval, change in status or constitution, disciplinary action taken.

• Inspection. While conducting the inspection of the stock broker, the Stock Exchange shall also conduct inspection of branches where the terminals of authorised persons are located.

• Dispute Resolution. Dispute between a client and an authorised person shall be treated as dispute between the client and the stock broker.

• Press Release. In case of withdrawal of approval due to disciplinary action, the Stock Exchange shall issue a press release and disseminate the names of such authorised persons on its website.

How We Help

At Anuj Desai & Associates, we help stock brokers appoint authorised persons, draft appointment agreements, and ensure compliance with SEBI's framework. If you need assistance with authorised persons compliance, reach out to our regulatory compliance desk.