Stock broking is a controlled and regulated profession. The profession involves trade in securities and stock. This trade is normally done through a recognized stock exchange. Since stock broking is a transactional process, it involves several parties. The main parties are the stock brokers, sub brokers, foreign brokers, and the trading and clearing members. Among these parties, the stock broker serves as the critical link that brings the other parties together to complete a successful transaction in stock trading. The stock broker can either be an independent institution, financial agency, or a dedicated portfolio within a bank.
Stock brokers must be recognized by the stock exchange in which the stock trading occurs. This recognition provides them with legitimacy and authority to conduct stock trading, as well as assures the entities purchasing the stocks from the stock brokers that their transactions are authentic and enforceable. Most stock traders are brokerage firms. Apart from stock trading, brokerage firms also trade in other forms of financial securities including derivatives. Since the brokerage firms must operate in lieu with the regulations set by stock exchanges, it is thus obvious that they have to abide by the laws and acts that regulate stock trading, and this implies that trade in financial securities is partly regulated by the laws governing stock trading. This means that a firm which specializes in derivative trading can also trade in stocks as a stockbroker as long as it repurposes and aligns itself into a stock brokerage firm.
Normally, the stock brokerage firm facilitates trade in financial securities and stock through the use of agent stockbrokers. The stock brokerage firm services a clientele base. The clients give the firm the money to invest alongside with instructions about their investment preferences. The brokerage firm then engages its stockbrokers, hereby defined as the agent stockbrokers, to purchase stocks in the stock exchange on behalf of the clients of the brokerage firm. Likewise, when the clients want to trade their stocks in the stock, exchange, they instruct the brokerage firm as appropriate. The brokerage firm and the agent stockbrokers do charge a commission for all the transactions that they undertake on behalf of their clients.
There are instances whereby the agent stockbroker is a division or an affiliate of the brokerage firm. It is nominally beneficial for the brokerage firm if the agent stockbroker is a division of its business operations. One of the chief benefits is derived from seamless integration of business practices and operations which ensure that the overhead costs are kept at a minimal, besides minimizing wastage. This means that the clients benefit from lower charges and timely delivery of relevant information. Additionally, the brokerage firm also benefits from stock broking press release style. This form of stock trading ensures that the brokerage firm, along with its agent stockbroker, is transparent about its trading activities, as well as responsive to the needs of its clients. CMC Markets, a firm which specializes in financial derivatives and stock trading, benefits from this business model.
Utility of Recognition
It is advisable that one seeks the services of a brokerage firm that is recognized by the main stock exchanges. Such recognition offers advantages to the entity seeking to trade in stocks. First of all, the entity would have a wide variety of stock choices to select from, and this enables the entity to select the stocks that are likely to have the highest yields. Secondly, the entity can take of the recognition of the brokerage firm in different nations to transfer its stocks to a different market, and then trade them there. Furthermore, the transactions conducted by the entity through its brokerage firm is by all virtues recognized as valid and authentic within all the market jurisdictions where the brokerage firm is recognized as a stock trader.
One of the conditions that a stock brokerage firm must accept to adhere to prior to being recognized is transparency. Transparency ensures that the stock broker operates within the confines of the law as well as ensures that the stock market is accessible to all the relevant players; and that no brokerage firm can introduce disequilibrium into the stock market. Stock broking press release style fosters transparency, and it thus enables the brokerage firm to lawfully trade in stocks, and thus enables it to be recognized by different major stock exchanges.