A Sub-Broker is a financial operator registered by the Securities and Exchange Commission (SEC) to act on behalf of a broker/dealer as its agent for assisting investors in buying, selling or dealing in securities through a broker.
Functions
A registered sub-broker shall have the following functions which shall be carried out only through its sponsoring broker/dealer;
1.Purchasing of securities;
- Sale of securities;
- Receiving payments from clients in any of the transactions mentioned in (1) and (2) above only by cheques written in favour of the sponsoring broker/dealer;
- Making payments to clients in any of the transactions mentioned in (1) and (2) above only by cheques drawn by the sponsoring broker/dealer;
- Other services ancillary to (1) to (4) above.
- The sub-broker shall not keep the funds of the client in its custody.
- All monies received from or on behalf of clients shall be duly receipted and remitted to the sponsoring broker/dealer within two (2) working days.
- The receipt issued by the sub-broker to clients shall bear the names and logos of the sub-broker and the sponsoring broker/dealer.
Registration requirements
As the registration of a sub-broker is mandatory in Nigeria, below are the registration requirements as provided by Rule 67 of the Securities and Exchange Commission, 2013;
- Corporate Sub-Broker
An application for registration as corporate sub-broker shall be filed on Form SEC 3 as contained in schedule III to these rules and regulations and accompanied by –
(a) two (2) sets of completed Form SEC 2 to be filed by the sponsored individual;
(b) a copy of the certificate of incorporation certified by the Corporate Affairs Commission (CAC). Where a copy not certified is filed, the applicant shall present the original copy for sighting by an authorized officer of the Commission;
(c) a copy of the memorandum and articles of association certified by the Corporate Affairs Commission which among others shall include powers to act as a sub-broker;
(d) a copy of the CAC Form containing particulars of directors certified by the Corporate Affairs Commission;
(e) copy of latest audited accounts or audited statement of affairs for companies in operation for less than one year;
(f) profile of the company covering among others brief history of the company, organizational structure, shareholding structure, principal officers, etc;
(g) Fidelity bond representing 20% of paid-up capital;
(h) sworn undertaking to keep proper records and render returns;
(i) a copy of the agreement signed between the sponsoring broker/dealer firm and sub-broker;
(j) evidence of minimum paid-up capital of N1 million;
(k) Sworn undertaking to comply with the provisions of the Act and the rules and regulations as may be required from time to time by the Commission;
(l) A recommendation letter from the sponsoring broker/dealer firm;
(m) Evidence of compliance with rule 20(4).
(n) any other information or document that may be required by the Commission from time to time.
- Individual Sub-Broker
(a) An application for registration as an individual sub-broker shall be filed on Form SEC 2 as provided in schedule III of these rules and regulations and shall be accompanied by the following:
(i) Certified copy of certificate of registration of business name (where applicable);
(ii) Evidence of minimum net worth of N500,000;
(iii) Sworn undertaking to comply with the provisions of the Act and the rules and regulations as may be required from time to time by the Commission;
(iv) Evidence of compliance with rule 20(4);
(v) Sworn undertaking to keep proper records and render returns.
(b) Rule 83(3) and (4) shall, with all necessary modifications, apply in case of denial or suspension of registration of a sub-broker.
Relationship between Sub-Brokers and Broker/Dealers
- A sub-broker shall:
(a) co-operate in protecting the interest of the client with regard to dividends, bonus shares or any other rights relating to the client’s portfolio;
(b) not fail to carry out the clients instructions;
(c) execute an agreement or contract which would clearly specify the rights and obligations of the sub-broker and the broker/dealer;
(d) not resort to unfair means of inducing clients from other broker/dealers.
- A sub-broker shall not:
(a) indulge in insider dealing, dishonorable, disorderly or improper conduct in the course of his business. He shall comply with the provisions of the rules and regulations of the Commission;
(b) neglect or fail or refuse to submit to the Commission such books, returns, correspondences, documents and papers or any part thereof as may be required, and shall not make any false or misleading statement on any returns required by the Commission;
(c) indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains;
(d) create false market either acting alone or in concert with others, or indulge in any act detrimental to the public interest or which leads to interference with the fair and smooth functions of the market mechanism
CONCLUSION
Sequel to above, in becoming a Sub-Broker in Nigeria, the entity must have been employed by an individual who is an Associate Member of the Chartered Institute of Stockbrokers (CIS), the entity must identify and enter into an agreement with a sponsoring Broker-Dealer (Dealing Member), and must be registered with the SEC to operate as a Sub-Broker.
