Authorised person

This is the most dangerous piece of vocabulary in Series I, because the same two words name two completely unrelated entities, and the workbook says so in a footnote that is easy to miss: "Authorised Person" defined under FEMA and "Authorized Person" as per SEBI are two different kind of entities.

Under SEBI, an authorised person is not a member of a stock exchange. He is any person — an individual, a partnership firm, an LLP or a body corporate — appointed by a stock broker (including a trading member) who provides access to the trading platform of a stock exchange as an agent of that stock broker. He is the local face of a distant broker. The category replaced the old sub-broker category, which SEBI discontinued in 2018.

Under FEMA, 1999, an authorised person means an authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised under sub-section (1) of Section 10 to deal in foreign exchange or foreign securities. This is the bank that converts your dollars. RBI authorises them, issues directions to them, and inspects their books.

One is an agent of a broker in the securities market. The other is a bank licensed by the central bank. They are not the same, they are not related, and an exam question can use either.

The SEBI route. A trading member wanting to expand into a town it has no office in appoints an authorised person there. The approval is not general: the trading member must obtain specific prior approval from the exchange for each such person, and the approval is segment specific — an AP approved for the equity segment is not thereby approved to operate a Currency Derivatives Segment workstation.

The AP must satisfy the criteria SEBI and the exchanges specify from time to time, be a fit and proper person (integrity and reputation, absence of convictions and restraint orders, competence including solvency and net worth, absence of wilful-defaulter categorisation), and have adequate office space, equipment and manpower to discharge the activities on behalf of the stock broker.

The relationship matters to clients in one very concrete way. When a trading member is declared a defaulter, clients who dealt through the defaulting member's authorised persons — provided those APs were registered with the stock exchange — are also eligible to claim from the Investor Protection Fund.

The FEMA route. RBI derives its power from FEMA, 1999 to authorise persons, issue directions to them and inspect their books. An AD Category-I bank is a scheduled commercial, state or urban cooperative bank authorised under Section 10(1) to undertake all current and capital account transactions. When an AD offers a foreign exchange derivative contract involving the rupee — other than a non-deliverable derivative contract — it must ensure the contract is for the purpose of hedging.

A garment exporter in Tiruppur runs both halves of this term in a single week.

Monday — the SEBI authorised person. He wants to hedge USD 500,000 of receivables. His broker is headquartered in Mumbai, but its authorised person in Tiruppur — approved by the exchange specifically for the Currency Derivatives Segment — enters the order on the trading workstation.

He sells 500 USDINR contracts at 83.05:

Contract value = 500 × 1,000 × 83.05 = Rs 4,15,25,000

The contract note comes from the trading member, not the AP. The AP is remunerated by the broker; he is an agent, not a principal, and he cannot hold client funds or securities in his own name.

Thursday — the FEMA authorised person. The dollars arrive. He takes them to his AD Category-I bank — an "authorised person" under FEMA — which converts them and credits his account in rupees. Only an authorised person under FEMA may do this; his stock broker cannot, and neither can the AP in Tiruppur.

If the broker later defaults. Because he dealt through an authorised person registered with the stock exchange, his claim is eligible for compensation from the Investor Protection Fund. Claims are placed before the Member Core Settlement Guarantee Fund Committee for sanction and ratification, then sent to the IPF Trust for disbursement, capped at the per-investor limit the exchange fixes with the IPF Trust and SEBI. Had he dealt through an unregistered introducer, that protection would not apply.

One exporter, one week, two authorised persons, and nothing in common between them except the phrase.

Chapter 8 (Regulatory Framework for Exchange Traded Currency Derivatives) carries the FEMA definition in a footnote to the RBI/SEBI regulatory table, and section 8.5 repeats that FEMA empowers RBI to authorise, direct and inspect authorised persons. The same chapter's membership section defines the SEBI authorised person, notes the discontinuation of the sub-broker category, and appends the footnote warning that the two are different entities. Chapter 10 then makes the AP relationship matter for IPF eligibility.

Exam questions exploit the ambiguity in both directions: "who authorises an authorised person?" has two right answers depending on which statute is in play, so read for FEMA or RBI on one side and stock broker, exchange or trading platform on the other. The other reliable question is whether an AP is a member of the exchange — he is not.

• Two different entities, one name. The workbook flags this explicitly. Identify the statute from the question stem before you answer.
• A SEBI authorised person is not a member of the stock exchange. He is an agent of a stock broker. Answering "member" is the single commonest error on this term.
• Approval is per-person and per-segment. An AP approved for another segment cannot operate a Currency Derivatives Segment workstation without specific prior exchange approval.
• The sub-broker category no longer exists. SEBI discontinued it in 2018; anything described as a sub-broker in a question is testing whether you know it was replaced by the AP.
• RBI authorises under FEMA; the broker appoints under SEBI. RBI does not appoint SEBI authorised persons, and SEBI does not license authorised dealers.
• IPF eligibility depends on registration. Clients of a defaulter who dealt through APs registered with the exchange are covered; the registration is what makes the protection attach.