8/3/2019 Brokage Houses
1/11
Marketing of Financial Services
Fin 6023
Semester: Fall 2009
Brokerage Houses
Presented to:Prof. Tauqir Haider
Presented by:
Mohsin Mahmood L1S07MBAM2006
Zeshan Bin Nasir L1S07MBAM0057Umais Akther Zaidi L1S07MBAM2043
Due Date: 14, November 2009
8/3/2019 Brokage Houses
2/11
Table of Contents
No. Page No.
1 Brokerage House
2 Kinds of Broker
3 Choosing a Broker
4 Registration of Broker
5 Code of Conduct for Brokerage House
5.1 Loyalty to Clients
5.2 Investment Process and Actions
5.3 Trading
5.4 Compliance and Support
5.5 Performance and Valuation
5.6 Disclosures
8/3/2019 Brokage Houses
3/11
A brokerage house, also called a brokerage firm, is a company licensed to buy and sell
stocks or securities. Acting as an intermediary between buyers and sellers, a brokerage house
typically employs brokers who carry out the wishes of the firm's clients as they pertain to the
trading of stocks. Broker services are usually provided on a commission basis. Commission
amounts charged for the buying and selling of securities vary with each brokerage house. Often,
the price per trade is indicative of the level of service the firm offers.
In addition to commissions, a brokerage firm may charge
various other fees. These fees may include charges for transferring
assets, closing an account, and wiring money. Additionally, a
brokerage firm may require the payment of annual services charges
and fees related to periods of account inactivity. Depending on the
policies of the brokerage house, a client's account may also incur a
fee for failing to meet a minimum required account balance.
A brokerage house may offer a variety of investment products or specialize in just one ortwo. Typical choices include stocks, mutual funds, and options, as well as government and
corporate bonds.Over-the-counter (OTC) bulletin board stocks may be offered as well.In addition to the trading of various investment products, a brokerage firm may offer
certain banking services. These services may range from money market sweeps and check
writing to visa and ATM cards. Cash kept in a brokerage house money-market account may
carry a higher interest rate than money held in a regular bank account.
Often, a brokerage house may offer market research and investing strategies as well.
Though much of the information uncovered by such research may be available on the Internet,many individuals don't have the time or the inclination to look for it. In such cases, having an
account with a firm that conducts in-depth investment research may be extremely beneficial.
Kinds of Broker
There are two kind of broker which is full-service broker and discount broker. The
investor has to decide which broker he need for the services they provide
Full-Service Brokers:
These brokers tend to offer a wider variety of financial products, investmentadvice, and research than discount brokers. They may offer stocks, bonds, derivatives,
annuities, and insurance. In exchange, they charge considerably higher fees.
Full-service brokers solicit business and are paid mostly by commissions. This
means they get compensated not according to how well your portfolio does, but by how
often you trade. In turn, that means it's in your broker's interest to have you trade as often
as possible.
8/3/2019 Brokage Houses
4/11
Discount Brokers:
Discount brokerages offer no advice or research -- they simply transact your
trades with no frills. Because they manage fewer products than their full-service
counterparts, discounters charge considerably lower fees. They also often offer online
order-entry services. Live brokers at these brokerages are usually paid a fixed salary toexecute your trades. They don't solicit, and they aren't paid commissions. Discount
brokerages make money by doing business in volume, competing mostly on price and
"reliability" of the service: Whoever has the lowest prices and the best service gets the
most trades.
Choosing a Broker
Many investors feel comfortable researching, selecting and buying their own stocks,
especially with the ease of buying afforded by the internet. However, if time is a facto r and ones
do not feel comfortable making investment decisions on your own, you can seek help from aqualified stockbroker. If you elect to do so, here are some tips for selecting a broker.
Determine in advance whether you are seeking the help of a discount or full-servicebroker. Discount brokers get commissions on each purchase, but offer little advice, while
a full-service broker will provide more investing assistance, but for a fee. Knowing what
you are looking for will save you time.
Look for a broker who is easily accessible and, if he or she is not reachable, then find outwho covers for them. On busy trading days, can you reach this broker? This can be very
significant.
Shop around. Meet with several brokers and try to find one with whom you feelcomfortable. The rapport you have with your broker is important. This individual will be
handling and investing your money. Therefore, if you dont feel comfortable or you feel
intimidated, then you should look for someone else. Dont get railroaded into using
someone you dont like.
Get referrals. It is always advisable to work with someone whom you have heard goodthings about. Ask around and find out which brokers other people use and why they
selected a specific broker.
Look for a broker who understands your financial goals and needs. He or she should takethe time to research the type of investments that will meet your needs and understand the
type of investor you areconservative, aggressive or somewhere in between.
8/3/2019 Brokage Houses
5/11
Check out the brokers background and strategy. First, make sure he or she is properlylicensed. Then find out about his or her experience, training and certifications. Next,
determine how he or she approaches investing. What are his or her criteria for making an
investment decision?
Do not use a broker that is steering you toward investments that he or she benefits fromby receiving higher commissions. You need someone who has your interests in mind. If a
broker has a "sure thing," be leery. After all, is there ever really a sure thing?
Find out how commissions are determined and how much they will be. Get a commissionschedule that spells out when you will be paying. Keep in mind that an annual fee, rather
than a transaction-based fee, can eliminate "churning," a practice whereby a broker is
running up commissions by making unnecessary transactions.
Find out in advance all additional fees and charges you will be expected to pay. Be careful with the "deep discount" brokers. Use only ones that you have heard (from
people you know) are reliable. Read the fine print carefully.
Registration of Broker
Following is the registration procedure for a broker laid by Securities and Exchange
Commission of Pakistan (SECP):
Application for Registration:
A member desirous of acting as broker shall make an application to the SECP in
Form as set out in the First Schedule of the Brokers and Agents Registration Rules 2001
for grant of a certificate of registration through the stock exchange of which he is a
member. The exchange shall forward the application to the SECP within 14 days from
the date of its receipt.
ELIGIBILITY for Registration:
A person is eligible for registration as a broker, if he
Is a member of the stock exchange; Is not less than twenty one years of age; Is a citizen of Pakistan;
8/3/2019 Brokage Houses
6/11
That promoters of such house are persons of means and integrity and havespecial knowledge of matters which the house may have to deal with as a
clearing house; and
That such person has complied with such other conditions as may be requiredby the SECP in the interest of the capital market.
Has at least passed graduation or equivalent examination from an institutionrecognized by the Government;
Provided that the SECP may relax the educational qualification in suitablecases on merit having regard to the applicants experience;
Is not a lunatic or a person of unsound mind; Has not been convicted of an offence involving fraud or breach of trust; Has not been adjudicated as insolvent or has suspended payment or has
compounded with his creditors ;
Has experience of not less than five years in the business of buying selling ordealing in securities;
Has not been a partner of a brokerage firm or a director of a brokeragecompany which has been convicted of an offence concerning brokerage;
Has not defaulted in payment of dues at clearing house; Has not defaulted in compliance with the provision of the Ordinance the Act
and the rules and regulations made there under,
Is not in default on settlement of an investor complaint where such complainthas been adjudicated by a stock exchange or a committee of a stock exchange
or the SECP and
Has complied with the directives of the SECP in respect of business conductdealings with clients and financial prudence;
Grant of Certificate of registration:
8/3/2019 Brokage Houses
7/11
The SECP, if it is satisfied that the applicant is eligible for registration as a
broker, and that it is in the interest of the stock market to do so, may grant certificate of
registration to the applicant. The certificate of registration of a broker shall be valid for
one year from the date of issue.
Renewal of Registration:
The certificate of registration is renewable on payment of fee as prescribed in the
Second Schedule of the Rules. Requirements of initial registration are applicable to
renewal of the registration.
Code of Professional Conduct for Brokerage Houses
The Code of Professional Conduct for Asset Managers and Brokerage Houses (the
Code) outlines the ethical and professional responsibilities of firms that manage assets on
behalf of clients. This Code is meant to apply, on a global basis, to firms (Managers), who
manage client assets as separate accounts or pooled funds (including brokerage houses,
collective investment schemes, mutual funds, and fund of funds).
Ethical leadership begins at the highest level of an organization. The Code should,
therefore, be adopted by the Managers board of directors, senior management, or similar
oversight body. Such adoption sends a strong message regarding the importance of ethical
behavior at the firm. Rather than creating rules that only apply to certain people or groups, this
Code is intended to cover all employees of the firm. Although not every employee is actively
involved in conduct covered in the Code, a code that is broadly applied reinforces the need for all
employees to understand the ethical issues involved in the asset management business. By
adopting and enforcing a code of conduct for their firm, Managers demonstrate their
commitment to ethical behavior and the protection of investors interests.
1. Loyalty to ClientsManagers Must:
Place client interests before their own Preserve the confidentiality of information communicated by clients within the
scope of the Manager-client relationship
Refuse to participate in any business relationship or accept any gift that couldreasonably be expected to affect their independence, objectivity, or loyalty to
clients.
8/3/2019 Brokage Houses
8/11
2. Investment Process and ActionsManagers Must:
Use reasonable care and prudent judgment when managing client assets. Not engage in practices designed to distort prices or artificially inflate trading
volume with the intent to mislead market participants.
Deal fairly and objectively with all clients when providing investmentinformation, making investment recommendations, or taking investment action.
Have a reasonable and adequate basis for investment decisions. When managing a portfolio or pooled fund according to a specific mandate,
strategy, or style:
o Only take investment actions that are consistent with the stated objectivesand constraints of that portfolio or fund;
o Provide adequate disclosures and information so investors can considerwhether any proposed changes in the investment style or strategy meet
their investment needs.
When managing separate accounts and before providing investment advice ortaking investment action on behalf of the client:
o Evaluate and understand the clients investment objectives, tolerance forrisk, time horizon, liquidity needs, financial constraints, and any other
unique circumstances (including tax considerations, legal or regulatory
constraints, etc.), and any other relevant information that would affect
investment policy.
o Determine that an investment is suitable to a clients financial situation.3. Trading
Managers Must:
Not act, or cause others to act, on material nonpublic information that could affectthe value of a publicly traded investment.
8/3/2019 Brokage Houses
9/11
Give priority to investments made on behalf of the client over those that benefittheir own interests.
Use commissions generated from client trades only to pay for investment-relatedproducts or services that directly assist the Manager in its investment decision
making process and not in the management of the firm.
Maximize client portfolio value by seeking best execution for all clienttransactions.
Establish policies to ensure fair and equitable trade allocation among clientaccounts.
4. Compliance and SupportManagers Must:
Develop and maintain policies and procedures to ensure that their activitiescomply with the provisions of this Code and all applicable legal and regulatory
requirements.
Appoint a compliance officer responsible for administering the policies andprocedures and for investigating complaints regarding the conduct of the Manager
or its personnel.
Ensure portfolio information provided to clients by the Manager is accurate andcomplete and arrange for independent third-party confirmation or review of such
information.
Maintain records for an appropriate period of time in an easily accessible format. Employ qualified staff and sufficient human and technological resources to
thoroughly investigate, analyze, implement, and monitor investment decisions andactions.
Establish a business-continuity plan to address disaster recovery or periodicdisruptions of the financial markets.
5. Performance and Valuation
8/3/2019 Brokage Houses
10/11
Managers Must:
Present performance information that is fair, accurate, relevant, timely, andcomplete. Managers must not misrepresent the performance of individual
portfolios or of their firm.
Use fair market prices to value client holdings and apply, in good faith, methodsto determine the fair value of any securities for which no readily available,
independent, third-party market quotation is available.
6. DisclosersManagers Must:
Communicate with clients on an ongoing and timely basis. Ensure that disclosures are prominent, truthful, accurate, complete, and
understandable and are presented in a format that communicates the information
effectively.
Include any material facts when making disclosures or providing information toclients regarding themselves, their personnel, investments, or the investment
process.
Disclose the following:o Conflicts of interests generated by any relationships with brokers or other
entities, other client accounts, fee structures, or other matters.
o Regulatory or disciplinary action taken against the Manager or itspersonnel related to professional conduct.
o The investment process, including information regarding lock-up periods,strategies, risk factors, and use of derivatives and leverage.
o Management fees and other investment costs charged to investors,including what costs are included in the fees and the methodologies fordetermining fees and costs.
o The amount of any soft or bundled commissions, the goods and/or servicesreceived in return, and how those goods and/or services benefit the client.
o The performance of clients investments on a regular and timely basis.
8/3/2019 Brokage Houses
11/11
o Valuation methods used to make investment decisions and value clientholdings.
o Shareholder voting policies.o Trade allocation policies.o Results of the review or audit of the fund or account.o Significant personnel or organizational changes that have occurred at the
Manager.