PROJECT ON

UNDERWRITERS AND BROKERS

SUBMITTED BY:

DOLLU MEHTA-13
YASH OZA-14
YASH PRAJAPATI -15
PRACHI RANAWAT-16

TY B. Com (Investment Management)

 (SEMESTER V)
UNDER THE GUIDANCE OF
VENKATESH SIR

ACADEMIC YEAR
2022 - 2023
INDEX:

SR. NO TOPIC PAGE NUMBER

1 Underwriters:
Introduction to underwriters 3
Appointment of Underwriters 3
Registration 3-4
Matters considered by SEBI in granting certificate 4
of Registration
Fees 4
Conditions for Registration 4
Functions of Underwriters 4-5
Different Roles Played By Underwriters 5
Types of Underwriters 5-7
Obligations and Responsibilities of Underwriters 7-9
Agreement with Clients 9
Inspection and Disciplinary Proceedings 10
Action in Case of Default 10
2 Brokers:
Introduction to Broker 10-11
Appointment of Broker 11-12
Eligibility Criteria for appointing the Brokers 12
Brokerage Rate 12
Functions of Brokers 12-13
Types of Brokers 13-14
Advantages of Brokers 14-15
Responsibilities of Brokers 15
Regulations for Brokers 15
Sub-broker 16
3 Difference Between Brokers and 17
Underwriters

Underwriters
The term underwriter first emerged in the early days of marine insurance. Shipowners sought
insurance for a ship and its cargo to protect themselves if the boat and its contents were lost.
Shipowners would prepare a document that described their ship, its contents, crew, and
destination.

An agreed-upon rate and terms were set out in the paper. Business people who wished to
assume some obligation or risk would sign their name at the bottom and indicate how much
exposure they were willing to accept. These businessmen became known as underwriters.

An underwriter is defined under section 2(a) (11), Securities Act of 1933, as a person who buys
any securities from an issuer to sell or distribute securities on behalf of the issuer. Underwriting
is necessary for public issues as it guarantees a full subscription of securities. Accordingly,
companies must rely on such agreements before opening the public issue to avoid losses and
reduce risks. They happen between the company and parties such as banks, financial
institutions, merchant bankers, brokers, or authorized parties.

Underwriters can participate directly or indirectly in such undertakings. These individuals or

institutions purchase securities from the issuing company directly from the primary
market when the existing shareholders or the public do not subscribe to the shares offered. It is
otherwise termed a “firm commitment offering.”

Companies can opt for a public issue, but in most cases, underwriters, through their best
efforts, gauge market interest. Their job includes setting the offer price and marketing
securities. Underwriting is one of the most important functions of an issue, as an individual or
institution undertakes the risks associated with them in returns of a specified premium. They
also analyze and evaluate the financial status of an application and convey it to companies to
determine whether or not to take it. Underwriting can involve many risks; if the shares remain
unsold, they incur huge losses and demand profits that act as rewards for their risk.

A lead underwriter or a bookrunner is usually an organization that assists a company with its
initial public offering. A group of underwriters comes together to form a syndicate in such
cases, which the lead underwriter leads.

Appointment of Underwriters
The issuing companies, in consultation with the lead managers/merchant bankers to the issues
appoint underwriters. The underwriters’ assets must be adequate to meet their obligations. A
statement to this effect should be incorporated in the prospectus.

Registration
To act as underwriter, a certificate of registration must be obtained from the SEBI. In granting
the certificate of registration, the SEBI considers all matters relevant/relating to the
underwriting and in particular, a) the necessary infrastructure like adequate office space,
equipment and manpower to effectively discharge the activities b) past experience in
underwriting/employment of at least two persons with experience in underwriting c) any
person directly/indirectly connected with the applicant is not registered with the SEBI as under
or a previous application of any such person has been rejected or any disciplinary action has
been taken against such person under the SEBI Act/ rules/regulations, d) capital adequacy
requirement of not less than net worth (capital + free reserves) of Rs.20 lakhs; and e) the
applicant/director/principal officer/partner has been convicted of offence involving moral
turpitude or found gully of any economic offence. FEE Underwriters had to, for grant or renewal
of registration; pay a fee to the SEBI from the date of initial grant of certificate, Rs. 2 lakhs for
the first and second years and Rs.1 lakh for the third year. A fee of Rs.20, 000 was payable every
year to keep the certificate in force or for its renewal. Since 1999, the registration fee has been
raised to Rs.5 lakhs. To keep the registration in force, renewal fee of Rs.2 lakhs every three
years from the fourth year from the date of initial registration is payable. Failure to pay the fee
would result in the suspension of the certificate of registration.

Matters considered by SEBI in granting certificate of Registration:

 Infrastructure adequacy (office space, equipment and manpower) to discharge the activities
relating to underwriting.
 The applicant must have experience in underwriting or he must appoint at least two
persons with experience in it.
 The applicant or any person directly or indirectly connected with the applicant has not been
granted registration with the SEBI as underwriter (Previous application for registration
should not have been rejected).
 The applicant for underwriting should not have any disciplinary action taken against him
under the SEBI Act/Rules/Regulations.
 The applicant for underwriting should have net worth (capital plus free reserve) of not less
than ` 20 lakh.
 The applicant for underwriting should not have been found guilty of any economic offence
and should not have been convicted of offence involving moral turpitude.

Fees
 The application fee for underwriter is ` 25,000/- the fee payable for registration at the time
of grant of certificate is ` 10 lakh.
 A renewal fee of ` 5 lakh every two years from the fourth year from the date of initial
registration is payable.
 Failure to pay the fee would result in suspension of certificate of registration.

Conditions for Registration

Conditions for registration applicable to merchant bankers are also applicable to underwriters.

Functions of Underwriter
Per the enumeration above, an underwriter’s job across all industries is to analyse and
subsequently assume the risk of another party against a fee or deny it.
In case of equities, an underwriter’s role is primarily felt in the Initial Public Offering (IPO) stage.
In this phase. A private company goes public by issuing shares for the first time.
When talking of insurance one of the underwriter’s chief functions id to determine the
likelihood that a policyholder will submit a claim, based on an array of factors. Following that,
they will set a premium.
In essence, their primary function is best defined as forging a market with stability and fairness
in regard to financial transactions and business decisions.

Different Roles Played By Underwriters

An underwriting agreement may take any of the following three forms:
(i) Standing behind the issue: Under this method, the underwriter guarantees the sale of a
specified number of shares within a specified period. If the public do not subscribe to the
specified amount of issue, the underwriter buys the balance in the issue.
(ii) Outright purchase: The underwriter, in this method, makes outright purchase of shares and
resells them to the investors.
(iii) Consortium method: Underwriting is jointly done by a group of underwriters in this method.
The underwriters form a syndicate for this purpose. This method is adopted for large issues.

Types of Underwriters
1. Insurance Underwriters
An underwriter for insurance determines whether an application from the potential client
needs further processing; whether they should take up the risk. Moreover, a critical analysis
reveals details about the level of risk, the amount of insurance, and whether the applicant has
to be granted an insurance policy. For example, individuals can take insurance for health, life,
rental or property, etc.

2. Stock Market
An underwriter for securities determines the price and risk involved in security. Here,
individuals or institutions undertake to underwrite the public offerings. This process ensures
the issuing company’s full subscription (i.e., raising the full amount of capital).
The underwriting process provides major liquidity for the securities, aiding in their distribution
and price stabilization. In addition, investors use information analyzed from the underwriting
process to make informed choices.

3. Banking or Mortgage Underwriters

An underwriter for a mortgage suspends, denies, or gives conditional approval of loans after
determining a customer’s creditworthiness. Basically, they examine the customer’s credit
history through their past financial transactions or statements. In addition, various parameters
such as past repayment of loans and value of collaterals provided for the mortgage, verification
of the candidate’s identity, employment, stability of income, review of tax returns, reports of
fraud, etc., are taken into consideration for the same.
4. Debt Security Underwriters
As far as debt security underwriting is concerned, it can be seen that the main job description in
this regard is for them to purchase debt securities from the issuing bodies, and then resell them
for a profit. The underwriting spread is created, which roughly is their profit.
5. Investment Underwriters
In the investing world, underwriters provide a valuable service for companies in the process of
launching their IPO. Through the underwriting of shares, financial institutions provide research
and guidance on the stock, ultimately becoming the sales force behind the offering. While the
lead underwriters steer the project, they will often solicit co-underwriters to further extend
their reach and guarantee greater success.

6. Medical Underwriters
As with other insurance products, medical underwriters work to determine the insurability of
people seeking health insurance. Through this process, insurance companies conduct an
investigation into an individual’s health background to learn about pre-existing conditions and
overall health status.
With information about a person’s medical background, current health, and potential risks, a
medical underwriter will make a decision on whether or not the insurance company should
extend coverage to them. If they do, their overall health can determine their monthly premium
or any exclusions due to their pre-existing conditions.

7. Lead Underwriters vs. Co-Underwriters

In financial terms, the lead underwriters (or bookrunners), are in charge of organizing and
executing the stock offering. During this process, they offer analysis, measure market demand
for the offering, and determine the final offering price. If they are successful, they can reap up
to an 8% sales commission on stock sales.
For large offerings, lead underwriters often solicit one or more co-underwriters to join the
offering. Forming an underwriter’s syndicate, these co-managers will write their own analysis of
the stock, and solicit sales from their book of institutional buyers. Creating the syndicate
reduces the bookrunner’s risk while giving them access to clients they may not have in their
networks.

8. Loan Underwriters
Even though the mortgage is a type of loan, there are underwriters for other types of loans as
well—for example, auto loans, student loans, and more. Moreover, banks, both small and big,
use the services of the underwriters to ascertain the risk of giving a loan. Also, the need for
underwriters is not just when giving a loan to an individual but also while lending money to
businesses.

9. Forensic Underwriters
Forensic underwriting occurs when a borrower fails to pay back a loan. In this case, the
borrower will be assessed again to determine whether the person can be given a new loan or a
refinance.

10. Institutional Underwriters

(a) Life Insurance Corporation of India (LIC), (b) Unit Trust of India (UTI), (c) Industrial
Development Bank of India (IDBI),(d) Industrial Credit and Investment Corporation of India
(ICICI), (e) Commercial Banks and General Insurance Companies. The pattern of underwriting of
the above institutional underwriters differ vastly in India. LIC and UTI have purchased industrial
securities from the new issue market with a view to holding them on their own portfolio. They
have a preference for underwriting shares in large and well established firms. The development
banks have given special attention to the issues in backward states and industries in the priority
list. The thrust of the development banks is also towards small and new issues which do not
have adequate support from other institutions. General insurance companies have shown
preference in underwriting the securities of fairly new issues.

11. Non-Institutional Underwriters –

They guarantee shares only with a view to earning commission from the company floating the
issue. They are known to off-load the shares later to make a profit. The brokers work with profit
motive in underwriting industrial securities. After the elimination of forward trading, stock
exchange brokers have begun to take an underwriting business. The percentage of securities
underwritten to the total private capital between 72 per cent and 97 per cent.

Obligations and Responsibilities of Underwriters

Every underwriter needs to fulfill certain obligations and responsibilities as part of his job. Some
of them are:
A) To abide by the Code of Conduct. An underwriter should:
1. Make all efforts to protect the interests of its clients.
2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.
3. Ensure that it and its personnel will act in an ethical manner in all its dealings with a body
corporate making an issue of securities (i.e. the issuer).
4. Endeavour to ensure all professional dealings are affected in a prompt, efficient and effective
manner.
5. At all times render high standards of service, exercise due diligence, ensure proper care and
exercise independent professional judgment.
6. Not make any statement, either oral or written, which would misrepresent
(a) The services that the underwriter is capable of performing for its client, or has rendered to
any other issuer company;
(b) His underwriting commitment.
7. Avoid conflict of interest and make adequate disclosure of his interest.
8. Put in place a mechanism to resolve any conflict-of-interest situation that may arise in the
conduct of its business or where any conflict of interest arises, should take reasonable steps to
resolve the same in any equitable manner.
9. Make appropriate disclosure to the client of its possible source or potential in areas of
conflict of duties and interest while acting as underwriter which would impair its ability to
render fair, objective and unbiased services.
10. Not divulge to other issuer, press or any party any confidential information about its issuer
company, which has come to its knowledge and deal in securities of any issuer company
without making disclosure to the SEBI as required under these regulations and also to the Board
directors of the issuer company. 67 Prepared and Compiled by DR. S. SYED RAFIQ AHMED
11. Not discriminate amongst its clients, save and except on ethical and commercial
considerations.
12. Ensure that any charge in registration status/any penal action taken by SEBI or any material
change in financials which may adversely affect the interests of clients/ investors is promptly
informed to the clients and any business remaining outstanding is transferred to another
registered person in accordance with any instructions of the affected clients/investors.
13. Maintain an appropriate level of knowledge and competency and abide by the provisions of
the SEBI Act, regulations, circulars and guidelines issued by the SEBI. The underwriter should
also comply with the award of the Ombudsman under the SEBI (Ombudsman) Regulations,
2003.
14. Ensure that the SEBI is promptly informed about any action, legal proceedings, etc. initiated
against it in respect of any material breach or non-compliance by it, of any law, rules,
regulations, and directions of the SEBI or of any other regulatory body.
15. Not make any untrue statement or suppress any material fact in any documents, reports,
papers or information furnished to the SEBI.
16. (a) Not render, directly or indirectly any investment advice about any security in the publicly
accessible media, whether real-time or non-real-time, unless a disclosure of his interest
including its long or short position in the security has been made, while rendering such advice;
(b) In case an employee or an underwriter is rendering such advice, the underwriter should
ensure that he should disclose his interest, the interest of his dependent family members and
that of the employer including their long or short position in the security, while rendering such
advice.
17. Not either through its account or their respective accounts or through their associates or
family members, relatives or friends indulges in any insider trading.
18. Not indulge in any unfair competition, which is likely to be harmful to the interest of other
underwriters carrying on the business of underwriting or likely to place such other underwriters
in a disadvantageous position in relation to the underwriter while competing for, or carrying
out any assignment.
19. Have internal control procedures and financial and operational capabilities which can be
reasonably expected to protect its operations, its clients and other registered entities from
financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or
commissions.
20. Provide adequate freedom and powers to its compliance officer for the effective discharge
of his duties.
21. Develop its own internal code of conduct for governing its internal operations and laying
down its standards of appropriate conduct for its employees and officers in the carrying out of
their duties. Such a code may extend to the maintenance of professional excellence and
standards, integrity, confidentiality, objectivity, avoidance of conflict of interest, disclosure of
shareholdings and interests, etc. 68 Prepared and Compiled by DR. S. SYED RAFIQ AHMED
22. Ensure that good corporate policies and corporate governance is in place.
23. Ensure that any person it employs or appoints to conduct business is fit and proper and
otherwise qualified to act in the capacity so employed or appointed (including having relevant
professional training or experience).
24. Ensure that it has adequate resources to supervise diligently and does supervise diligently
persons employed or appointed by it to conduct business on its behalf.
25. Be responsible for the acts or omissions of its employees and agents in respect to the
conduct of its business.
26. Ensure that the senior management, particularly decision makers have access to all relevant
information about the business on a timely basis.
27. Not be party to or instrumental for
(a) Certain of false market,
(b) Price rigging or manipulation, or;
(c) Passing of unpublished price sensitive information in respect of securities which are listed
and proposed to be listed in any stock exchange to any person or intermediary. Agreement with
Clients every underwriter has to enter into an agreement with the issuing company. The
agreement, among others, provides for the period during which the agreement is in force, the
number of underwriting obligations, the period within which the underwriter has to be
subscribe to the issue after being intimated by/on behalf of the issuer, the amount of
commission/brokerage, and details of arrangements, if any, made by the underwriter for
fulfilling the underwriting obligations.
B) General Responsibilities
28. Not to derive any direct or indirect benefit from underwriting the issue other than the
commission which is 5% for shares and 2½% for debentures under the underwriting agreement.
29. The total underwriting obligations under all the agreements not to exceed twenty times the
net-worth.
30. On being called upon by a body corporate, under the underwriting agreement, to subscribe
for its securities, the underwriter shall subscribe to the securities within forty five days of the
receipt of the intimation.
31. To maintain proper books of accounts and records14.
32. To appoint a Compliance Officer, who shall be responsible for monitoring the compliance of
the Act15, rules and regulations, notifications, guidelines, instructions, etc. issued by the Board
or the Central Government and for redressal of investors´ grievances. The compliance officer
shall immediately and independently report to the Board any non-compliance observed by him.
33. To furnish all such information before the Board, which the Board may call for at any time.

Agreement with Clients

Every underwriter has to enter into an agreement with the issuing company. The agreement,
among others, provides for the period during which the agreement is in force, the amount of
underwriting obligations, the period within which the underwriter has to be subscribe to the
issue after being intimated by/on behalf of the issuer, the amount of commission/brokerage,
and details of arrangements, if any, made by the underwriter for fulfilling the underwriting
obligations.

Inspection and Disciplinary Proceedings

The framework of the SEBIs right to undertake the inspection of the books of accounts, other
records and documents of the underwriters, the procedure for inspection and obligations of the
underwriters is broadly on the same pattern as applicable to the lead managers.
Action in Case of Default
The liability for action in case of default arising out of non-compliance with any conditions
subject to which registration was granted. ii. Contravention of any provision of the SEBI
Act/rules/regulations, by an underwriter involves the suspension/cancellation of registration,
the effect of suspension/ cancellation are on the lines followed by the SEBI in case of lead
managers.

Brokers
A broker is an independent person or a company that organises and executes financial
transactions on behalf of another party. They can do this across a number of different asset
classes, including stocks, forex, real estate and insurance. A broker will normally charge
a commission for the order to be executed.

When issue of share process is to start brokers are appointed by the company management, in
consultation with merchant bankers to the issue. It is the duty of every broker to make
payments to his clients or deliver the securities purchased within 24 hours of payout. Broker is
the member of the stock exchange his appointment is done. Merchant bankers appoints a
broker of repute. Such persons alone ensures the sale of securities of this new company, or
existing company

Brokers are the persons mainly concerned with the procurement of subscription to the issue
from the prospective investors. The appointment of brokers is not compulsory and the
companies are free to appoint any number of brokers. The managers to the issue and the
official brokers organize the preliminary distribution of securities and procure direct
subscriptions from as large or as wide a circle of investors as possible. The stock exchange bye-
laws prohibits the members from the acting as managers or brokers to the issue and making
preliminary arrangement in connection with any flotation or new issue, unless the stock
exchange of which they are members gives its approval and the company conforms to the
prescribed listing requirements and undertakes to have its securities listed on a recognized
stock exchange. The permission granted by the stock exchange is also subject other stipulations
which are set out in the letter of consent. Their active assistance is indispensable for broad
basing the issue and attracting investors. By and large, the leading merchant bankers in India
who act as managers to the issue have particulars of the performance of brokers in the country.
The company in consultation with the stock exchange writes to all active brokers of all
exchanges and obtains their consent to act as brokers to the issue. Thereby, the entry of
experienced and unknown agencies in to the field of new issue activity as issue managers,
underwriters, brokers, and so on, is discouraged. A copy of the consent letter should be filed
along with the prospectus to the ROC. The names and addresses of the brokers to the issue are
required to be disclosed in the prospectus. Brokerage may be paid within the limits and
according to other conditions prescribed. The brokerage rate applicable to all types of public
issue of industrial securities is fixed at 1.5 percent, whether the issue is underwritten or not.
The mailing cost and other out of pocket expenses for canvassing of public issues have to be
borne by the stock brokers and no payment on that account is made by the companies. A
clause to this effect must be included in the agreement to be entered into between the broker
and the company. The listed companies are allowed to pay a brokerage on private placement of
capital at a maximum rate of 0.5 percent. Brokerage is not allowed in respect of promoter‘s
quota including the amounts taken up by the directors, their friends and employees, and in
respect of the rights issues taken by or renounced by the existing shareholders. Brokerage is
not payable when the applications are made by the institutions/bankers against their
underwriting commitments or on the amounts devolving on them as underwriters consequent
to the under subscription of the issues. The issuing company is expected to pay brokerage
within two months from the date of allotment and furnish to the broker, on request, the
particulars of allotments made against applications bearing their stamp, without any charge.
The Cheques relating to brokerage on new issues and underwriting commission, if any, should
be made payable at par at all center where the recognized stock exchanges are situated. The
rate of brokerage payable must be is enclosed in the prospectus.
(i) Banking All types of foreign exchange transactions including advice on exchange, imports,
exports finance, financing the movement of goods through acceptance credits, the handling of
commercial letters of credit, the negotiation and collection of foreign bills, accepting call or
term deposits, short or medium term finance, bridging finance, leading; corporate banking,
treasury/trading services, discount/guarantee facilities. Issuing and underwriting. Public issues;
underwriting of issues, preparation of prospectuses; new equity; obtaining stock exchange
listings/broking services
(ii) Corporate Finance New issues; development capital; negotiation of mergers and takeovers;
capital reconstruction; bridging finance, medium term loans; public sector finance.
(iii) Management Services Economic planning; trusts administration; share secretarial services;
primary capital market participation.
(iv) Product Knowledge Foreign exchange, import finance; export finance; commercial LCs;
FBCSs; Call/ Term deposits; medium term loans (MTL); Bridging finance; leasing, treasury
services, discount/guarantees, Acceptance credits, public issues, underwriting, equity, broking,
estate planning, trusts, share transfers. Marketing the public issue arises because of the highly
competitive nature of the capital market. Moreover, there is a plethora of companies, which
knock at the doors of investors seeking to sell their securities. Above all the media bombards
the modern investors with eye catching advertisement to sell their concepts to prospective
investors.

Appointment of Brokers
The appointment of brokers is not obligatory. There is no restriction to the number of brokers
to be appointed. The leading merchant bankers acting as managers to the issue have particulars
of the performance of brokers. The company consults with the stock exchange and writes to all
active brokers of all exchanges. It obtains their consent to act as brokers to the issue. The
prospectus should disclose the names and addresses of the brokers to the issue and the same
along with the copy of the consent letter of the broker is to be filed with the Registrar of
companies.
Eligibility Criteria for appointing the Brokers
The stock exchange bye laws prohibit the members from acting as
 Managers or brokers to the issue and
 Making preliminary arrangement in connection with new issue
If the stock exchange of which they are members does not give its approval. Also it would
prohibit the members to act as brokers if the company does not confirm to the prescribed
listing requirements and undertakes to have its securities listed on a recognized stock
exchange. The permission granted by stock exchange is further subject to other stipulations
which are set out in the letter of consent.

Brokerage Rate
The brokerage rate is 1.5% for all types of public issue industrial securities. It is immaterial
whether the issue is underwritten or not. The stock brokers have to meet mailing cost and
other out of pocket expenses for canvassing of public issues. The company will not pay these
expenses. The agreement with broker and company should include a clause to this effect. The
brokerage on private placement of capital payable by the listed companies is a maximum of
0.5%. Brokerage is not allowed in respect of
 Promoters quota
 Amount taken up by the directors/their friends and employees
 Rights issue taken by or renounced by the existing shareholders
 Brokerage is not allowed when the application are made by institutions/bankers against
their underwriting commitments.
The brokerage should be paid by the company within two months from the date of allotment.
The particulars of the allotment made against applications bearing their stamps should be
furnished to the broker. The cheques for brokerage amount on new issues should be made
payable at par at all centers where the recognized stock exchanges are situated. The prospectus
should disclose the rate of brokerage.
Functions of Broker
A trading broker has to enter into an agreement in the specified format with his client before
accepting any orders on his clients behalf. The said agreement has to be executed on the non-
judicial stamp paper duly signed by both parties. Apart from the brokers, there are other
category of persons called sub-brokers. This sub-broker is not a member of the stock exchange.
But he is a person who acts as an agent of a stock broker. Brokers help in the floatation of new
issues not only through underwriting or as a managing brokers but also as financial consultants,
advising on the proper capital structure, methods of raising capital and requirements of
Companies Act, 2013, Securities Contracts (Regulation) Act and listing requirements, etc.
Brokers along with the network of sub-brokers market the new issue. They send their own
circulars and applications to their clients and do follow-up to market the securities
The secondary functions include lending to clients for margin transactions, provide information
support about the situation on trading platforms, etc.

Types of Broker
1. Stock broker
A stock broker – also known as an investment broker – manages and executes the buying and
selling of shares. Because individual investors cannot buy shares directly from the stock market,
you would need a stock broker. The broker will buy and sell the stocks you want to invest in.

2. Forex broker
A forex broker, also known as a retail forex broker, buys and sells currencies on your behalf. The
benefit of having a forex broker includes 24-hour market access and the ability to speculate on
currency pairs all over the world. Forex brokers try to minimise their costs to stay competitive
in the market, but you still pay certain fees when trading with them, including a spread.
Transactions in the forex market are done in pairs, so you’d either buy or sell the pair you’d
want to trade – for example GBP/USD.

3. Full-service broker
Full-service brokers, or financial advisers, offer more than one service – such as retirement and
investment planning, tax advice and research. Someone who doesn’t have time to do their own
financial planning might find this type of broker useful. Full-service brokers normally work for
fee that is higher than other broker fees. The main difference between full-service brokers and
other brokers is the amount of services they offer.

4. Discount broker
A discount broker is a broker that charges a lower commission, because they don’t offer any
advice or value-adds like research and planning to your trade, they only execute. Typically, the
more trades they execute for you, the lower the cost. If you choose this type of broker, you
would need to manage your portfolio yourself.

5. Robo-advisers
Robo-advisers are automated digital platforms that provide financial planning services online.
They use algorithms to come up with the financial advice and require with very little human
supervision. The robo-adviser uses this data to offer investment advice.
Robo-advisers tend to be cheaper than even discount brokers. Many charge an annual flat fee
of 0.2% to 0.5% of a client’s total account balance. The opening balances are very low as well.
Besides, you can reach the robo-adviser at any time through an internet-connected device.
There’s no need to go to their office. You can start transacting in just a few clicks.
However, your investment options may be limited. That’s because robo-advisers deal mainly in
mutual funds.
6. Real Estate Brokers
The job of a real-estate broker begins after the mortgage broker’ ends (in some cases). After
you have procured the loan and have access to funds for buying a property, Real estate brokers
work towards finding the perfect one for you.  They will look for multiple houses, keeping in
mind your requirements, preference, and budget apart from finding the property, they also
assist in legal contracts, and transportation at times. There are three interlinked and often
confused between terms related to Real estate brokers, I.e. Real estate agents, and Realtors.
Well, to explain it in a nutshell, real estate brokers hire real estate agents to assist clients in the
property buying process and realtors are licensed members of the National Association of
realtors who are a higher professional in the industry and has to function according to code of
ethics.

7. Insurance Brokers
As the name suggests, an insurance broker is someone who assists you while choosing the best
insurance policy. These are certified individuals with access to hundreds of policies and their
extensive research. They advise you on the best value policy for your requirements.
An insurance broker can also prepare customized insurance and risk mitigation policies in
accordance with your goals and risk appetite.

8. Mortgage Brokers
A mortgage broker is a person who assists you when you’re trying to procure a home loan. He
does the research on different interest rates offered by different banks in order to land you
with the best deal. A mortgage broker, however, should not be confused with mortgage
bankers who provides his own funds for your mortgage purposes.
He solely acts as an intermediary between a mortgage lender and borrower by helping them
meet to gain mutual benefits. A mortgage broker’s aim to save your time and money during the
process of obtaining a loan.

Advantages of brokers
1. Reducing selling and distribution costs: If a service firm needs to contact every potential
buyer, the cost would be higher. For example, travel services command a wide market and
meet even the minute requirements of the tourists. In the absence of travel agents and
brokers, travelers would have to struggle for suitable guidance for arranging their travel plans.
2. Special skills and Knowledge: Intermediaries have special knowledge and skill and are
proficient in their areas. They collect enormous details about the services market with the help
of reference materials and online services. They are knowledgeable and provide helpful
information to clients.
3. Wider representation: Agents and brokers charge commission for the services rendered by
them. But then the consideration payable to agents and brokers is invariably affordable. So,
there is little risk in extending the service offerings to a wide market. The representatives of the
services firm who work for commission travel long distances in marketing the services. If
buildings and equipment are to be located in distant places, the costs would be exorbitant. By
hiring agents and brokers, service firms need not pay for the infrastructure facilities to reach
the customer. The benefits of a wider market coverage are available to the service firm at a
lower cost.
4. Knowledge of local markets: Agents and brokers are experts in the markets they serve. They
have a thorough knowledge about the local as well as international market and can understand
the varying needs of different markets. They know how to adapt the services to match the
needs of clients. Customers who are dispersed internationally become familiar with the service
offerings only by contacting their agents and brokers.
5. Customer choice: Certain agents like travel agents, agents for financial services etc.,
represent the services of multiple suppliers so that the customers need not approach different
agents for different services. If a traveler needed to visit five different travel agencies, each of
which carried the services of a single supplier, the efforts of the customer would leave him
drained.
A single agent representing multiple suppliers can provide varied services simultaneously. This
saves time for the customer in searching for different sources. Similarly, independent agents
who have the right to sell a variety of services allow customers a wide choice. For example, if an
agent sells UTI schemes and also ICICI Bank schemes at one place, customers stand to benefit.

Responsibilities of Broker
 Building relationships with clients.
 Negotiating deals with clients.
 Closing deals.
 Analyzing data and market trends.
 Processing sales transactions.
 Demonstrating a solid understanding of the company's products or services.
 Networking to attract potential clients.

Regulations for Brokers

Brokers register with the Financial Industry Regulatory Authority (FINRA), the broker-dealers’
self-regulatory body. In serving their clients, brokers are held to a standard of conduct based
on the “suitability rule,” which requires there be reasonable grounds for recommending a
specific product or investment. The second part of the rule, commonly referred to as “know
your customer,” or KYC, addresses the steps a broker must use to identify their client and their
savings goals, which helps them establish the reasonable grounds for the recommendation.
The broker must make a reasonable effort to obtain information on the customer's financial
status, tax status, investment objectives, and other information used in making a
recommendation.
This standard of conduct differs significantly from the standard applied to financial advisors
registered with the Securities and Exchange Commission (SEC) as registered investment
advisors (RIAs). Under the Investment Advisers Act of 1940, RIAs are held to a strict fiduciary
standard to always act in the best interest of the client, while providing full disclosure of their
fees

Sub-Broker
Sub Broker is any person, not being a member of a stock exchange. He acts on behalf of a stock
broker as an agent or otherwise for assisting the investors in buying, selling or dealing in
securities through such stock brokers. He is further an agent of the broker and carries out
actual transactions for the broker. He is one who has either made an application for registration
or is registered as a sub broker under SEBI Act, 1992.
The members of the stock exchange who execute transactions of their clients through the
members of other stock exchanges are treated as Sub Brokers. Any person who not being a
member of a stock exchange, acts on behalf of a stock broker as an agent for assisting the
investors in buying, selling or dealing in securities through such stock brokers is called as a sub
broker. He is associated with securities market and should not buy, sell or deal in securities
unless he has complied with the conditions of the certificate of registration obtained from SEBI
issued in accordance with Rules and Regulations. If he is associated with securities market
before the establishment of the SEBI, then he may continue to do business but upon an
application made for registration within a period of 3 months from the establishment of SEBI,
till the disposal of such application.
There are certain conditions provided in Rule 5 of SEBI (Stock Brokers and Sub-Brokers) Rules,
1992, which are to be fulfilled before the grant of a certificate to a sub-broker. If the stock
broker/sub broker fails to comply with the conditions subject to which he is been granted
registration, then he would be penalized and his registration would be suspended or cancelled.
A sub broker should co-operate with his broker in the transactions. He should not knowingly
and willfully deliver documents which constitute bad delivery. He should also co-operate with
other contracting party for prompt replacement of the documents which are declared as bad
delivery. Further, he should extend his full co-operation to his stock broker in protecting the
interests of his clients regarding their rights to dividends, bonus rights, rights shares and any
other right relatable to such securities.
Further, sub brokers, who act on behalf of their principal broker, are required to issue to their
clients purchase or sale notes for all the transactions entered into by them on behalf of their
clients. While performing this function, the sub brokers act as an agent of the principal broker.
He is also required to be registered with the concerned stock exchange. The business of the
stock brokers and sub brokers is too much interlinked, so, for properly monitoring their
activities separate registration procedure is provided. The sub broker owes obligations not only
to the client but also to the stock broker. The sub broker enters into a tripartite agreement with
the main broker and his client. He assists his clients in obtaining the contract note from the
main broker. But he cannot issue the note or make payments through cheques directly, as that
has to be done by the main broker.

Difference between Brokers and Underwriters

Broker Underwriter
A Broker is a person who buys and sells An underwriter is a person or company that
goods or assets for others. underwrites an insurance risk.

A broker is entitled to receive Commission While an underwriter receives underwriting

only on those shares are debentures for Commission on the entire issue which he
which he procures subscription. underwritten.

Even where the shares or debentures are not In case, of Underwriters, An underwriting
offered to the public, the brokerage is commission is payable only on those shares
payable on shares or debentures for which or debentures which are offered to the
subscription is procured. public.

Broker’s percentage of  brokerage is Underwriting commission is payable but it

determined as per prevailing rate should not exceed 5% of the issue price of
shares and 2.5 % of the issue price of
debentures.

The brokers are entitled to brokerage even if In case of Underwriters, only if the Article of
the Article of Association of a company is an Association authorized underwriting
silent on this point. Commission, the underwriters are entitled to
get such Commission.

In case, of Broker, It is not required the name While in case of underwriters the name of
and address of each broker is to be disclosed location and address of each one is to be
in the prospectus. shown in the prospectus.