Deep Dive: Authorised Person (AP) Framework

Why this page is structured this way: Authorised Persons (APs) replaced sub-brokers in 2018-2019 as the SEBI-permitted distribution channel for brokers. The supervisory framework evolved across multiple NSE/COMP circulars (2009 → 2024). The page first explains the regulatory chain, then maps the registration / onboarding / supervision / termination lifecycle, then practical operational considerations including AMC, penalty matrix, and incident reporting.

TL;DR

• Regulatory chain:
  • 2009 — SEBI MIRSD/DR-1/Cir-16/09 (6 November 2009) — Foundational framework for “market access through Authorised Persons” replacing the sub-broker concept
  • NSE/COMP/48536 (9 June 2021) — Foundational NSE COMP-department circular operationalising the SEBI 2009 framework — AP role, prohibitions, supervisory obligations
  • NSE/COMP/49509 — Update
  • NSE/COMP/50030 — Update
  • NSE/COMP/55716 (22 Feb 2023) — Restriction on use of certain words (Bank, Investment, Wealth) by TM / Authorised Person
  • NSE/COMP/56947 (2 Jun 2023) — Strengthens AP supervisory framework — incident reporting, terminal monitoring, AMC framework
  • NSE/COMP/58438 (18 Sep 2023) — Operationalises identification and removal of inactive AP terminals
  • NSE/COMP/60859 (26 Feb 2024) — Annual Maintenance Charge (AMC) of Rs 5,000 per AP per year from FY 2024-25
  • NSE/COMP/63628 (28 Aug 2024) — Revised joint-exchange framework for supervision of APs and Branches; Annexure A inspection scope, criteria, methodology
  • NSE/INSP/63425 (14 Aug 2024) — Reinforces that any referrer to a broker must be registered as AP
  • NSE/INSP/66284 (24 Jan 2025) — Keeps NSE/INSP/63425 in abeyance pending Brokers’ ISF representation
• AP is registered as a market participant of a specific trading member (broker); cannot have multiple broker affiliations (with limited exceptions)
• AP cannot collect funds or securities from clients directly; client account is with the broker
• AP earns a commission from the broker as per agreed terms; commission is reported and tracked under SEBI brokerage transparency rules
• AMC Rs 5,000 per active AP per year (per NSE/COMP/60859)
• AP supervision — broker must conduct periodic inspections, monitor terminal activity, report incidents within 2 working days for assured-return / unauthorised scheme observations

Conceptual overview

Before 2018, brokers used “sub-brokers” — distribution agents who could deal with clients on the broker’s behalf. The sub-broker framework had governance issues — sub-broker frauds (unauthorised schemes, fund misuse) plagued the industry. SEBI restructured: the sub-broker concept was deprecated and replaced by Authorised Person (AP).

The AP is structurally different from a sub-broker:

• AP is registered by the broker with the exchange — not directly with SEBI as an intermediary
• AP cannot accept funds or securities — client’s funds/securities flow through the broker only
• AP’s compensation is commission-based, transparent, and reported
• AP is subject to broker’s supervision, not independently licensed

The NSE COMP-department circular chain (NSE/COMP/48536 → 49509 → 50030 → 56947 → 58438 → 60859 → 63628) progressively tightened the framework. Each circular addressed gaps identified through inspection findings and investor complaints.

Caution

Broker is principal; AP is agent. Operationally and legally, the broker is the principal — responsible for all client interactions, all regulatory obligations, all compensation for AP-related misconduct. AP’s actions bind the broker. A broker cannot deflect AP-related grievances to “we’ll route this to the AP”; the regulatory obligation is broker-level. This is the foundational principle from NSE/COMP/48536 and reaffirmed in every successor circular.

1. AP definition and scope

1.1 Who can be an AP

• Individual (typically with required NISM certification)
• Partnership firm (with at least one NISM-certified partner)
• Limited Liability Partnership (LLP)
• Body corporate (with required NISM-certified person)
• Cooperative society (with restrictions)

1.2 AP can do

• Refer prospective clients to the broker
• Distribute broker’s products (broking, MTF, DP services, mutual fund distribution if registered separately, etc.)
• Provide investor education (within SEBI / exchange permissible limits)
• Communicate with clients on broker’s behalf within prescribed limits
• Operate broker-provided terminal at AP’s office (with mandatory broker-side controls per NSE/COMP/56947)
• Receive commission as per agreed terms

1.3 AP cannot do

• Accept funds or securities from clients (per NSE/COMP/48536 foundational restriction)
• Operate any kind of client account (bank / demat / trading)
• Provide investment advisory unless separately registered under SEBI IA Regulations
• Conduct PMS-like activities
• Operate off-market schemes
• Issue assured return / guaranteed profit communications
• Use restricted words in firm name (per NSE/COMP/55716 — “Bank”, “Investment”, “Wealth”, “Asset Management”)
• Have multiple broker affiliations (with limited exceptions specified in NSE Compliance bye-laws)

1.4 Permitted activities under separate registration

• AP that is separately registered as SEBI Investment Adviser (IA) — can provide advisory
• AP that is separately registered as Portfolio Manager (PMS) — can provide PMS (rare)
• AP that is mutual fund distributor (AMFI registered) — can distribute MFs
• These are independent registrations and do not blur the AP role

Note

Sub-broker terminology is deprecated. The SEBI Stock Brokers (Amendment) Regulations 2018 phased out the sub-broker category. Existing sub-brokers were given a transition window to either become Authorised Persons (registered under broker) or apply for fresh stock broker registration. Communications, account-opening forms, and internal documents referring to “sub-brokers” instead of “APs” are inappropriate post the 2018-2019 transition and may surface as inspection findings. Industry-typical: legacy material is rewritten as part of the periodic Master Circular update cycles.

2. AP registration

2.1 Pre-requisites for AP applicant

• Application form per exchange-specified format
• PAN of AP entity (individual / firm / LLP / body corporate)
• Proof of existence (incorporation certificate, partnership deed, etc.)
• KYC documents (address proof, identity proof)
• Education / experience documents (typically minimum 12th standard for individuals, 5+ years experience preferred)
• NISM Series-VIII (Equity Derivatives) or relevant NISM certification for the designated person
• No conflict-of-interest declaration with other brokers
• No pending regulatory action declaration
• Net-worth declaration (per exchange bye-laws; threshold varies by exchange and AP type)

2.2 Application route

• AP applies through the principal broker (the broker is the applicant on AP’s behalf)
• Broker conducts due diligence
• Application uploaded to NSE / BSE / MCX AP registration portal
• Exchange reviews — typically 15-30 working days
• Approved APs receive registration number

2.3 Documentation

• AP-Broker agreement — defines roles, responsibilities, commission, termination
• Compliance officer letter — designating the AP-engagement compliance owner at broker side
• AP code of conduct acknowledgement
• AP terminal allocation (if applicable)

2.4 Activation

• Once registered, AP appears on broker’s AP register at exchange
• AP can start referring clients
• Terminal (if assigned) connected to broker systems with monitoring controls

3. NISM certification

3.1 Required certifications

• NISM Series-VIII (Equity Derivatives Certification Examination) — for derivatives segment AP
• NISM Series-V-A (Mutual Fund Distributors) — if AP distributes mutual funds (independent registration with AMFI)
• NISM Series-V-C (Mutual Fund Foundation) — alternative MF certification
• NISM Series-VII (Securities Operations and Risk Management) — for operational understanding
• NISM Series-XV-A (Investment Adviser - Level 1) — if separately registered as IA
• Exchange may require specific certification based on segments

3.2 Validity and renewal

• NISM certifications valid for 3 years
• Renewal via Continuing Professional Education (CPE) — typically online refresher modules
• Renewal certificate must be on AP file with broker

3.3 Certification verification

• Broker verifies NISM certification at registration and at renewal
• Lapsed certification — AP cannot continue activities until renewal

4. AP supervision (NSE/COMP chain 2021-2024)

4.1 Supervisory framework evolution

NSE/COMP/48536 (9 Jun 2021) — Foundational. Defines AP role, prohibitions (no incentive sharing beyond approved rates, no PMS-like activity, no off-market schemes), and members’ supervisory obligations. Implements SEBI MIRSD/DR-1/Cir-16/09 (6 Nov 2009).

NSE/COMP/49509 — Update. Operational refinements.

NSE/COMP/50030 — Update. Reinforcement of supervisory obligations.

NSE/COMP/56947 (2 Jun 2023) — Strengthens framework. Adds:

• Incident reporting — 2 working days for assured-return / unauthorised-scheme observations
• AP inspection methodology
• Terminal monitoring requirements
• AMC framework (operationalised via NSE/COMP/58438 and NSE/COMP/60859)

NSE/COMP/58438 (18 Sep 2023) — Operationalises identification and removal of inactive AP terminals. Inactive AP = no trades in last 6 months. Members must identify, classify, and act on inactive APs. Introduces foundation for AP AMC effective FY 2024-25.

NSE/COMP/60859 (26 Feb 2024) — AMC of Rs 5,000 per registered AP per year across segments from April 1, 2024 (FY 2024-25). Payable in April of each FY based on March-31 AP register. AMC once charged is non-refundable.

NSE/COMP/63628 (28 Aug 2024) — Revised joint-exchange framework for supervision of APs and Branches by members. Annexure A prescribes:

• Minimum / indicative scope of AP/Branch inspections
• Criteria for inspection prioritisation
• Methodology — sample selection, on-site visit obligations, documentation
• Harmonisation of inspection cadence across NSE / BSE / MCX

4.2 Broker’s supervisory obligations

Per the supervisory framework chain:

• Periodic inspections of APs — annual at minimum; quarterly for higher-risk APs
• Terminal monitoring — surveillance of trading from AP terminals; flag-unusual patterns
• Incident reporting — 2 working days for material observations (assured return, unauthorised schemes, regulatory breach)
• Annual visits to AP premises (industry-typical at large brokers; can be remote for low-risk APs)
• Inactive AP management — identify, classify, terminate or reactivate
• AMC payment — Rs 5,000 per AP per year as per FY24-25 onwards
• Termination procedure — formal process with notice, recovery, exchange intimation

4.3 AP inspection scope

Per NSE/COMP/63628 Annexure A:

• AP premises — physical inspection of office
• Records — client referral records, communication logs, marketing material
• Terminal use — login history, order entries, trade patterns
• Client interactions — sample review of AP-led client onboardings
• Conflict of interest — verify AP not pursuing prohibited activities
• Compliance documentation — NISM certification, KYC of AP staff, premises lease
• Complaint history — investor complaints involving the AP

4.4 Sample-size for AP inspection

• Industry-typical:
  • 100% of APs inspected annually for QSBs and large brokers
  • 50% annually for mid-size brokers; remaining 50% biennially
  • Risk-based prioritisation — APs with higher trade volume, recent complaints, AP-tagged client losses get inspected first

4.5 AP inspection report

• Per-AP report with observations
• Compliance Officer review
• Remediation tracking
• Aggregated quarterly to Compliance Officer / Designated Director

5. AP turnover reporting

5.1 What is reported

• AP-tagged trade volume (by segment, by exchange)
• AP-tagged client count (active / inactive / dormant)
• AP-tagged brokerage earned
• AP-tagged commission paid

5.2 Reporting cadence

• Monthly to broker’s compliance MIS
• Quarterly to exchange (where required by AP-supervisory framework)
• Annually consolidated into broker’s Annual Compliance Report

5.3 Use of turnover data

• Supervisory prioritisation (high-volume APs inspected more often)
• AMC payment validation (active APs)
• AP commission verification
• Regulator inspection support
• AP terminations for inactive APs

6. AP penalty schedule

Per NSE/INSP/53530 (Enforcement Actions) penalty grid as applicable to AP-related violations + NSE/COMP/63628 and successor amendments:

Violation	Penalty (industry-typical; verify in current bye-laws)
AP information not updated in exchange systems	Financial disincentive per AP per delay-day
AP inactive but not terminated (per NSE/COMP/58438)	Financial disincentive; potential supervisory action
AP AMC not paid (per NSE/COMP/60859)	Financial disincentive; AP cannot operate till AMC paid
Material observation not reported within 2 working days	Financial disincentive; SEBI inspection finding
AP conducting prohibited activity	Termination of AP; broker disciplinary action; potential refund to client
Unauthorised AP referrals (per NSE/INSP/63425)	Compliance action against broker; broker may need to register all referrers as APs
AP using restricted words (per NSE/COMP/55716)	AP name change required; disciplinary action
AP terminal misuse	Termination; supervisory action
AP-tagged unauthorised trade	Disciplinary action; client refund; AP termination; potential AP-broker contractual recovery

7. AP-broker relationship structure

7.1 Contractual

• Master AP-Broker agreement
• Commission structure — flat per trade, slab, fixed monthly, or hybrid
• Term and termination clauses
• Indemnification — AP indemnifies broker for AP’s own breaches; broker remains primary for regulatory liabilities
• Confidentiality
• Data ownership — broker owns client data; AP has limited access

7.2 Commission

• Pre-agreed transparent rates
• Subject to SEBI brokerage rules / cap (where applicable)
• Tax — AP receives commission net of TDS
• Reported under broker’s Section 194H / 194J TDS regime

7.3 Financial controls

• AP does not access client accounts
• AP-allocated funds (if any, for marketing reimbursement) handled separately
• No comingling

7.4 Liability

• Broker primary for client losses arising from AP misconduct
• AP secondary; broker may recover from AP via contractual indemnification
• SEBI / exchange enforcement targets the broker; AP may face separate action

8. AP onboarding flow

8.1 Step 1 — Prospect identification

• Broker identifies AP candidate (referral, advertising, direct approach)
• Initial due diligence (background, credentials, references)
• Discussion of commercial terms

8.2 Step 2 — Due diligence

• Background check (criminal record, prior SEBI action, prior financial issues)
• Reference check (prior employer / business associates)
• KYC of AP entity (PAN, address, identity)
• NISM certification verification
• Net-worth verification (if applicable per exchange bye-laws)
• Financial / banking history check

8.3 Step 3 — Documentation

• AP-Broker agreement signed
• AP code of conduct acknowledged
• Compliance officer assignment
• Terminal allocation (if applicable)
• Marketing material approval

8.4 Step 4 — Exchange registration

• Application uploaded to NSE / BSE / MCX AP registration portal
• Exchange review (15-30 working days)
• Registration number issued

8.5 Step 5 — Activation

• AP can start referring clients
• Terminal connected with monitoring controls (per NSE/COMP/56947)
• Initial training / orientation by broker
• Compliance kit handover

8.6 Step 6 — Ongoing

• Periodic inspections
• Commission payments
• AMC payment
• Renewals (NISM, agreements)
• Performance reviews
• Termination / continuation decisions

9. AP compliance audit

9.1 Annual review

• Each AP audited at least annually (industry-typical at most brokers; mandatory at QSBs)
• Audit scope per NSE/COMP/63628 Annexure A
• Findings documented and remediated
• Audit reports retained 5-10 years (industry-typical; some bye-laws may prescribe specific retention)

9.2 Random / event-triggered review

• Random audits of selected APs (e.g. 10% sample monthly)
• Event-triggered (complaint received, surveillance alert, regulatory inquiry)
• Spot inspections without prior notice

9.3 AP inspection report

• Per-AP review noting:
  • Premises and identification
  • Terminal use and access
  • Client referral records
  • Communication / marketing material
  • NISM certification status
  • Open complaints / regulatory issues
  • Conflict of interest declarations
  • Recommendations

9.4 Aggregate review

• Aggregated quarterly to Compliance Officer
• Annual summary to Designated Director / Audit Committee
• Repeat observations escalated

10. AP termination procedure

10.1 Voluntary termination by AP

• AP gives notice per contract (typically 30 days)
• Broker processes deactivation
• Final commission settlement
• Pending issues addressed
• Exchange intimation

10.2 Termination for cause

• Material breach by AP (regulatory violation, fraud, off-market scheme, etc.)
• Broker conducts internal investigation
• AP given opportunity to explain
• Termination notice issued
• Recovery from AP (where contractually possible)
• Exchange intimation with reason
• Client communication regarding AP changeover

10.3 Termination for inactivity

• Per NSE/COMP/58438 — inactive APs (no trades 6 months) must be flagged
• After classification, AP can be reactivated (renewed agreements, recertification) or terminated
• AMC continues to apply till termination

10.4 Post-termination

• Client accounts transition to broker’s direct servicing (or to another AP)
• Pending settlements completed
• AP terminal access revoked
• AP-tagged trading code retired
• Records retained per regulatory minimum
• AP cannot transition clients to another broker without separate process

10.5 Client communication

• Clients informed of AP change
• Service continuity assured (broker continues as principal)
• Alternative service contact provided

11. Edge cases

11.1 AP migration between brokers

• AP cannot simultaneously serve multiple brokers (with limited exceptions in exchange bye-laws)
• AP termination at old broker → fresh registration at new broker
• Clients may migrate via voluntary closure-and-reopen at new broker

11.2 AP entity changes (firm reconstitution, partner change)

• Material reconstitution requires fresh review and reactivation
• Partner addition / departure requires intimation; recertification may be needed

11.3 AP succession (death of individual AP)

• Operations transfer to broker pending re-registration with new AP
• Estate of AP receives outstanding commission per agreement
• Clients informed and serviced directly by broker

11.4 AP financial distress

• Broker has obligation to monitor AP financial health
• Distressed APs may need replacement
• Client accounts unaffected (broker remains principal)

11.5 AP fraud

• Material AP-led fraud requires:
  • Immediate AP termination
  • Internal investigation report
  • FIU-IND STR (if money-laundering pattern)
  • SEBI intimation
  • Exchange intimation
  • Client compensation (broker primary liability)
  • Civil / criminal action against AP
  • Industry information sharing
• Industry-typical recovery from AP rarely matches actual client losses

11.6 AP-tagged trades requiring complaint resolution

• AP-related complaints route to broker (SCORES / IGRC / ODR)
• Broker is respondent
• AP-internal disciplinary action separate from regulator-facing response

11.7 AP commissions and TDS

• Commissions subject to TDS under Section 194H
• AP receives commission net of TDS
• TDS certificate issued by broker (Form 16A)

11.8 Referral by non-AP entity

• Per NSE/INSP/63425 — any referrer must be registered as AP
• Per NSE/INSP/66284 (Jan 2025) — kept in abeyance pending Brokers’ ISF representation
• Operational reality: brokers may have informal referral arrangements; current regulatory state is in flux

12. Practical notes

• [gotcha] Don’t engage AP without completing exchange registration — operating an unregistered AP is a serious violation under NSE / BSE / MCX bye-laws. Penalty is significant and may trigger broker-side enforcement.

• [industry practice] Most large brokers (>50k UCC) operate AP networks of 100-1000 APs across India. AP supervision team is a dedicated compliance function at QSBs.

• [risk trade-off] Aggressive AP recruitment for distribution speed increases supervisory burden. Mature brokers calibrate AP count to supervisory capacity.

• [cost optimization] AP AMC (Rs 5,000 per AP per year per NSE/COMP/60859) is one of many AP-related costs. Industry-typical total cost per AP: Rs 25,000-50,000 per year including AMC, supervisory effort, system access, training. Cost per AP should align with AP productivity (commission revenue).

• [gotcha] Annual AP audit is not optional. Failure to inspect APs is an exchange inspection finding under NSE/INSP/57394 / NSE/INSP/67804 framework.

• [industry practice] AP onboarding due diligence typically includes credit check + criminal record check + SEBI / RBI defaulter list check. Mid-size brokers use third-party background-check services for scale.

• [gotcha] AP cannot accept funds. Any complaint indicating an AP collected money from client should trigger immediate investigation — this is a serious regulatory breach with potential criminal implications.

• [gotcha] AP-tagged trading volume should be tracked at the order level. The order-tagging architecture (in OMS) should preserve AP-source even when modifications happen.

• [industry practice] AP training is annual; refresher modules cover regulatory changes, new products, compliance updates. NISM certification renewal cycles align with this.

• [gotcha] AP termination must be communicated to clients. Clients have right to choose continuing with broker (most do) or migrating. Migration is not automatic.

• [industry practice] Some brokers don’t engage APs at all; they distribute through digital channels or direct sales. Both models work; AP model has higher distribution reach in semi-urban / rural India.

• [gotcha] AP terminal monitoring must be substantive — login patterns, order patterns, profitability of AP-tagged clients. Boilerplate monitoring fails inspection.

• [risk trade-off] AP commissions paid more competitively attract better APs but reduce broker margin. Industry-typical commission: 30-50% of brokerage for AP-tagged trades.

• [gotcha] AP cannot operate as a separate brand. AP must use broker’s brand for client-facing communications. Independent AP brand is a violation per NSE/COMP/55716.

• [industry practice] Sub-broker terminology is deprecated. Communications referring to “sub-brokers” instead of “APs” are inappropriate post 2018-2019 transition. Some legacy material may still use it; should be cleaned up.

• [gotcha] AP referrals of non-clients (e.g. AP referring potential PMS clients to a partner PMS) is a grey area. Verify the activity is legitimate per AP framework and PMS regulation.

• [industry practice] Most brokers maintain an AP register with each AP’s registration number, NISM certification status, AMC payment, complaint history, last audit date. This drives operational decisions.

13. AP-related operational metrics

Industry-typical KPIs for AP supervision teams:

• AP utilisation rate — % of APs actively tagging trades
• AP turnover per AP — average annual turnover per AP
• Inactive AP rate — % of APs flagged inactive
• AP complaint rate — complaints per AP per year
• AP inspection completion rate — % audited within 12 months
• AP NISM renewal compliance rate — % with current NISM certification
• AP commission accuracy — commissions paid match contractual rate

14. Adjacent regimes

• SCORES / IGRC / ODR — AP-related complaints route to broker; broker handles
• AML / PMLA — AP-onboarded clients have same AML scrutiny; AP transactions reviewed for unusual patterns
• Surveillance / Chapter IVA — AP-tagged trades within surveillance scope
• Inspection — AP supervision is a standard inspection area
• System audit — AP terminal controls reviewed by system auditor
• KYC — AP-onboarded clients still must complete full broker-level KYC; AP cannot complete KYC themselves except for incidental document collection per agreement
• Brokers’ institutional mechanism (Chapter IVA) — AP supervision is part of fraud-detection framework

Cross-references

• Deep Dive — SCORES Procedure
• Deep Dive — IGRC
• Deep Dive — ODR
• Deep Dive — Concurrent Audit
• Deep Dive — System Audit
• Deep Dive — Inspection Types
• Deep Dive — Surveillance NORMS / GSM / ASM
• Deep Dive — Fit-and-Proper
• Compliance Blueprint
• Circulars — NSE
• Circulars — SEBI MIRSD
• Circulars — BSE
• Circulars — MCX

Verified through

2026-05-14

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