Field Guide to Trading Terms

Broker license

Family VIII · Regulation

Not to be confused with forex broker, broker, asic regulated broker.

Broker license is the regulatory permission a firm holds to operate as a broker within a given jurisdiction. It is issued by a supervisory authority and defines which activities the firm may perform, which client categories it may serve, and which rules it must follow. The same firm may hold several licenses from different regulators, each covering a separate legal entity or market.

What a license covers

A license is specific to an entity, a jurisdiction and a set of permitted activities. Typical conditions include minimum paid-up capital, client-money segregation, record-keeping, complaint handling and periodic reporting. Regulators also impose conduct rules on how products may be marketed and to whom they may be sold.

Because these requirements are set nationally, capital thresholds, compensation schemes and leverage limits differ between regulators and can change over time. A license number or register entry is usually the only reliable way to confirm a firm's status.

Checking a license

Verification is done through the regulator's public register, not through a firm's own website. The register shows the legal entity name, the license status and the activities covered. A firm may display a license that belongs to a different group entity, so the entity named on the account agreement should match the register entry.

Worked example: capital condition

A regulator sets a minimum capital requirement that varies by permission type. A firm applying for a dealing permission must show the higher figure.

Minimum capital check
Advisory permission requirement—50,000
Dealing permission requirement—730,000
Firm's available capital—400,000
Dealing permission400,000 < 730,000Not met

The firm meets the advisory threshold but not the dealing threshold, so the dealing permission would be refused or restricted until capital is raised.

Often confused with

forex broker
A forex broker is a business that intermediates retail currency trades, whereas a broker license is the regulatory permission that business may hold; the visible sign is that one names a business activity and the other names an authorisation.
broker
A broker is the firm or person that executes orders for clients, while a broker license is the authorisation that firm or person must obtain; the visible sign is that one is an entity and the other is a permission.
asic regulated broker
An ASIC regulated broker is a broker supervised by the Australian Securities and Investments Commission, whereas a broker license is the general authorisation itself; the visible sign is that one names a specific regulator and the other does not.

See also

Family: VIII · Regulation · Index A–Z