Before starting work as an Authorised Person in the stock market, it is essential to understand the terms of the agreement. The Authorised Person Agreement defines rights, responsibilities, commission, and the scope of work. But what are the associated benefits and the rules for terminating the agreement? Let’s understand this in simple terms.
Who Is an Authorised Person in the Stock Market?
An Authorised Person (AP) is an individual, partnership firm, LLP, or body corporate appointed by a stock broker to act as the broker’s agent and carry out permitted activities related to providing clients with access to the stock exchange’s trading platform. An AP also requires approval from the concerned stock exchange to operate.
What Is an Authorised Person Agreement?
When an individual works with a stockbroker as an Authorised Person, a written agreement is executed between the two parties. This Authorised Person Agreement clearly outlines the nature of the AP’s work, their responsibilities, and the method by which the broker will pay their commission or remuneration. It also includes provisions regarding confidentiality and the conditions for terminating the agreement.
What does an Authorised Person Agreement include?
| Main condition | What does it mean |
|---|---|
| Scope of activities | What permitted activities can the AP undertake? |
| Responsibilities | Responsibilities of Brokers and APs |
| Confidentiality | Security of client and business information |
| Commission sharing | On what basis will the AP receive remuneration? |
| Termination clause | Under what conditions can the agreement be terminated? |
Rights of an Authorised Person Under the Agreement
An AP’s rights under the agreement are primarily linked to their role, remuneration, and the terms established with the broker; therefore, it is essential to understand these in the context of the agreement’s conditions.
- Right to Agreed Remuneration: An AP receives agreed-upon remuneration from the broker in exchange for their services. This may take the form of commissions, fees, charges, or a salary. An AP cannot charge clients directly for their remuneration.
- Clarity Regarding Role and Activities: The agreement outlines the scope of the AP’s activities and responsibilities. This ensures they are aware beforehand of the permitted activities they may undertake on behalf of the broker.
- Understanding Commission-Sharing Terms: The agreement also includes terms related to commission sharing. Consequently, the AP should understand how the commission is determined, the conditions governing payment, and how their remuneration is linked to their role.
- Knowledge of Important Contract Terms: Conditions such as confidentiality and termination are also part of the agreement. Understanding these beforehand provides the AP with clarity regarding their work and the terms of their relationship with the broker.
Benefits of Being an Authorised Person
The benefits of becoming an Authorized Person (AP) extend beyond just earning commissions. Partnering with a broker offers the AP an opportunity to expand their financial services business and better serve their existing client network.
- Opportunity to Grow the Business: By leveraging their existing network and market knowledge, an AP can introduce the broker’s services to a wider audience. This creates scope for gradually building a client base.
- Access to Broker’s Infrastructure: An AP can utilize the trading platforms, technology, and operational support provided by the broker. However, access to these facilities depends on the specific agreement established with the broker.
- Scope for Commission-Based Earnings: An AP receives agreed-upon remuneration from the broker in exchange for their services. As the business grows, there is potential for increased earnings; however, there is no guarantee of a fixed income.
- Facilitating Client Service: By partnering with a broker, an AP can help their clients access the broker’s trading ecosystem and services. This enables the AP to manage client relationships in a more structured and efficient manner.
Authorised Person Rights and Responsibilities: Understanding the Difference
An Authorised Person acquires certain contractual rights under the agreement but is also required to comply with the rules prescribed by the broker and the exchange.
| Rights of Authorised Person | Responsibilities of Authorised Person |
|---|---|
| Right to receive the agreed remuneration from the broker. | Adhering to the agreement and applicable exchange rules. |
| Clarity regarding one’s permitted activities and role | Working within the limits of one’s authority |
| Knowing the agreed terms of commission sharing | Keeping client information confidential |
| The right to understand the terms set out in the agreement. | Not accepting payment directly from the client for one’s remuneration. |
| Working according to the agreed-upon working arrangement with the broker. | Not receiving or paying client money or securities in one’s own name or account. |
Under the NSE’s current framework, terms regarding an AP’s activities, responsibilities, confidentiality, commission sharing, and termination are covered in a written agreement. Additionally, client funds and securities must not be held in the AP’s own account.
Code of Conduct for an Authorised Person
An Authorised Person (AP) must adhere to the established rules, record-keeping requirements, and client-related procedures while working with the broker. The agreement may also outline practical conditions that clarify the AP’s day-to-day operations.
- Clear Understanding Regarding Commission with the Broker: There must be a clear agreement between the AP and the stock broker regarding commission payouts. Since the terms of commission sharing are defined in the written agreement, it is best to clarify these details upfront to avoid any confusion regarding payments later on.
- Proper Maintenance of Transactions and Records: It is essential to keep records related to the AP’s work organized. Brokers are required to conduct periodic inspections of their AP’s operations and records; therefore, maintaining documents and transaction-related information correctly is crucial from both a practical and a compliance perspective.
- Not Issuing Documents Independently Without Broker Approval: Official documents such as contract notes and statements related to clients are issued by the broker. While an AP may provide administrative assistance, they cannot issue such documents in their own name.
- Not Holding Client Funds or Securities in Personal Accounts: An AP cannot receive or pay client funds or securities in their own name or account. The settlement of client funds and securities must take place between the broker and the client in accordance with the prescribed process.
- Providing Necessary Information to the Broker: Brokers are required to monitor the activities and records of their APs. Consequently, the AP must make all necessary records and information related to their work available for the broker’s review or inspection.
What Should You Check Before Signing an Authorised Person Agreement?
Looking only at the commission is not enough before signing an agreement. It is essential to understand certain practical clauses beforehand, as these terms can later influence your working style and your relationship with the broker.
- Check the Agreement’s Validity and Parties Involved: First, ensure that the agreement contains the correct details of the stock broker and the Authorised Person (AP) and that the document pertains to the authorized arrangement. The AP should also ensure that the copy of the agreement is properly executed.
- Read Commercial Terms Carefully: Beyond the commission, examine the payment cycle, applicable conditions, deductions, and other commercial terms. Be sure to verify whether the points verbally communicated by the broker are clearly reflected in the agreement.
- Understand Modification and Approval Clauses: Read the clauses regarding whether the broker’s approval or intimation is required in the event of changes to the AP’s firm, LLP, or company such as changes in constitution, ownership, or other significant details.
- Review Inspection and Record-Keeping Terms: The agreement may contain requirements regarding the AP’s records and broker inspections. Therefore, understand which records must be maintained and how or when information must be provided to the broker.
- Understand Conditions for Termination: It is crucial to know the notice period, applicable procedures, and pending obligations regarding the termination of the agreement. Understanding this helps avoid unexpected issues when ending the relationship.
Terminating an Authorised Person Agreement
When the working relationship between a broker and an Authorised Person (AP) is to be ended, a mutual decision alone is insufficient; adherence to the agreement’s termination clause and the applicable exchange process is mandatory. Under the NSE’s current framework, an AP appointment can be withdrawn or cancelled upon the request of either the broker or the AP, subject to prescribed requirements.
When can the agreement be terminated?
Termination or cancellation may occur when the broker or the AP wishes to end the relationship. Additionally, the Exchange may withdraw the appointment if the AP subsequently fails to meet eligibility requirements or if their continuation is deemed contrary to the interests of investors or the securities market.
What is the termination process?
If a broker wishes to cancel an AP’s appointment, the cancellation application must be submitted via ENIT, and the required documents must be uploaded in accordance with the NSE’s current process. There is no requirement for the submission of physical documents.
What should be kept in mind after termination?
The termination of the agreement does not automatically extinguish all pre-existing responsibilities. It is essential to handle pending transactions, records, client-related matters, and any continuing obligations stipulated in the agreement in accordance with the applicable terms.
Conclusion
The Authorised Person Agreement is not merely a formal document; it clarifies the terms of work, responsibilities, and expectations between the broker and the AP. Before signing it, it is essential to understand the rights, commission structure, Code of Conduct, and termination conditions. This ensures the relationship is clearer and managed professionally. If you are looking to become an Authorised Person, partner with Pocketful to access competitive profit-sharing opportunities, advanced trading tools, and dedicated support to help you manage and grow your business efficiently.
Frequently Asked Questions (FAQs)
What is an Authorised Person Agreement?
It is a written agreement between the broker and the Authorised Person (AP) that outlines the terms of their working relationship.
What are the rights of an Authorised Person?
An AP is entitled to agreed remuneration and the contractual rights specified in the agreement.
What are the benefits of becoming an Authorised Person?
An AP gets the opportunity to grow their business in collaboration with the broker and earn income based on commissions.
What is the Code of Conduct for an Authorised Person?
An AP is required to engage in fair dealing and adhere to the applicable rules set by SEBI, the exchange, and the broker.
Can an Authorised Person charge clients directly?
No, an AP cannot charge their remuneration directly to clients.
