All You Need to Know About Regulatory Norms

Can Authorised Partners trade for themselves? All you need to know about regulatory norms

The capital market regulator, the Securities and Exchange Board of India (SEBI), allows Authorised Partners to engage in trading for themselves. However, this is subject to certain legal frameworks to ensure transparency.

Authorised Partners play a crucial role in expanding the business of stock broking firms as they operate as a bridge between the clients and the brokerage. With a booming stock market in India, and a large number of investors slowly entering the equity segment, brokerages are relying more on Authorised Partners to expand their operations. Authorised Partners find new clients for broking firms and offer customised trading solutions to meet the needs of each client.

While Authorised Partners help clients in their investment decisions, many are curious to know whether they can trade for themselves. Clarity about Authorised Partners engaging in trading for themselves is crucial for both investors and those who want to launch their Authorised Partner ventures.

So, let’s delve into this to find out the answers.

Are Authorised Partners allowed to trade for themselves?

Authorised Partners can engage in stock trading for themselves, but with certain restrictions.

Scope of trading: An Authorised Partner should be registered with the stock exchanges to engage in stock trading. The agreement with the brokerage should also allow the Authorised Partner to carry out stock trading for themselves. An Authorised Partner, if an individual, can trade for themselves in their own name. Authorised Partners can also trade in the name of immediate relatives like a spouse, dependent children, and dependent parents, when they are clients.

When the Authorised Partner is a firm, enterprise, LLP, or body corporate, trading can be done in the name of the registered entity, partners, directors, or promoters as clients.

Disclosure: In both cases, while trading for close relatives or the stakeholders of their firms as clients, the Authorised Partners need to disclose the details of the trading account to the stock exchanges as well as the brokerage firm for which they work. The Authorised Partners must ensure that there is no conflict of interest with the clients of the brokerage.

Ethical standards: As per SEBI regulations, Authorised Partners are not permitted to use sensitive information that they have acquired through their professional duties for themselves. Maintaining market integrity is of utmost importance, and it necessitates adherence to established standards of behaviour and relevant regulations.

Compliance through record-keeping: Authorised Partners are required to keep thorough records of their individual trading activity to guarantee accountability and regulatory compliance. Regulatory bodies periodically inspect these records to ensure compliance with set standards and procedures.

Key factors to consider before engaging in self-trading as Authorised Partners

• When Authorised Partners trade for themselves, it attracts scrutiny from both the stock exchanges and brokerage
• APs generally have access to research reports, exclusive data, and market news on some stocks, which may not be available to other traders
• This access can provide undue advantage
• Apart from profit from investments, APs will also earn commission on the trading they do for themselves
• Due to these factors, self-trading by APs comes under scrutiny
• As an Authorised Partner, when you trade for yourself, your trading account is closely monitored for any improper actions and conflicts of interest
• Any trades based on insider information, tips, or recommendations not publicly available would attract legal action

So, it’s crucial for Authorised Partners to remain watchful and take all possible steps to avoid any conflict of interest or violation of regulatory norms while engaging in trading for self.