How to open a broking account

The new system

There was a time when opening an account with a broker was as simple as getting introduced to a broker through a contact. And if you two agreed, the business started at that very moment, if so desired. Nevertheless, even though India is an emerging market, our systems and procedures have improved with time. Today, SEBI (Securities Exchange Board of India) has come out with a prescribed format to be used as an account opening form, which has been passed on to brokers by the concerned Stock Exchanges.

Thus, first you need to approach the broker shortlisted by you, then preferably meet him to discuss your service requirements and the consideration for the service rendered. It is advantageous to approach the broker through a friend who is already dealing with the broker. It is not a precondition but does help as both parties get a little reference on each other. Today, many brokers have standard terms and conditions. The terms are so standard that, agreeable, one just needs to apply for opening an account.

 

Some points one needs to specifically agree upon

The key issues to touch upon are:

1. Brokerage: You should frankly share your service expectations and business volumes and agree upon a brokerage rate.
2. Charges and costs: The market has a practice where, besides brokerage, charges such as the stamp duty and transaction charges are payable by the investor. It is beneficial to try and negotiate a lower brokerage, if such charges are being levied over and above the brokerage.
3. Services: It is good to clarify all service requirements and understand what services are desired by you and what services the broker can provide. All brokers have a standard set of services offered to all their clients, these you can safely assume are going to be available to you too. However, when you have some customised service needs, you must try and arrive at the finer modalities of such a service. This is so because it takes a while before such customised services can be provided and systems ironed out to achieve a seamless delivery. You should not shy away from paying some extra for such special services, either through brokerage or a separate fee.
4. Value judgement: We approach a broker based on the impression we have of him. It is nice to consciously re-confirm our perceptions about the broker. It helps strengthen your expectations and give a more realistic picture of his reliability, besides circumventing misunderstandings that could emerge later.

 

The account opening form

After the terms of the account have been mutually agreed upon between you and your broker, both of you need to complete an account opening form before transactions begin. An account opening form consists of two parts:

• Know Your Client form
• Member Client agreement

It is important that the clients fill separate forms for each exchange they wish to deal on and a separate form for each segment. The segments are broadly equity, debt and derivatives.

 

The Know Your Client (KYC) form

This form is like the bio-data of a client. It is different for individuals and companies, the main difference being that in a company form, it is important to furnish the details of the key people behind the company. The following points are covered in a FYC form:

1. Client name: as desired on the contract note.
2. Client address: both permanent and correspondence.
3. Telephone numbers
4. Recent client photograph
5. Date of birth
6. Gender
7. Educational qualification
8. Occupation
9. Resident status: whether NRI or a Resident Indian
10. Bank account details: This must be accompanied by a letter from the bankers confirming the details.
11. Annual income in the last three years
12. Client depository account details
13. Income tax number (PAN/GIR) along with a copy of the PAN card or a copy of the document showing that such a number is applied for. In the absence of such a number or application for the same, the daily turnover shall be restricted to below Rs10lac.
14. Current market value of portfolio held by the client
15. Details of other brokers with whom the client may already be registered.
16. Name and signature of the person who is introducing the client.
17. A certified true copy of any two of the following documents:
1. Passport
2. Driving licence
3. Ration card
4. Voters identity card
5. Copy of IT return filed.

In case of a corporate Know Your Client form, you need to attach the following:

6. A copy of the Board Resolution, allowing the company to invest in stocks and shares.
7. A copy of the Memorandum and Articles of Association of the company.

Member-Client agreement

This is a legal document drawn between the broker and the client. The agreement is made on a Rs20 non-judicial stamp paper. The parts covered in the agreement are related to the terms of the account. It is not specific as to the brokerage charged, but is an 'in principle' agreement on how the account opening, transactions, charges, account closure, etc. will be handled.

Once these documents are complete, the broker needs to open an account for the new client and allot him a unique account code. This unique code is important, as it needs to be fed in to the exchange terminal each time an order is placed. Such a practice also helps build transparency as each transaction is identifiable right from the time the order is placed.

But if all this seems like jumping the gun for someone who doesn't even know what a broker can offer you , our School series covers that topic as well. Meanwhile, at least you can consider yourself somewhat familiar with the legal formalities of opening a broker account.