The sub-broker will fade into stockmarket history. The Securities and Exchange Board of India has hammered the final nail into the sub-brokers' coffins.

From December 1, 2004, sub-brokers will not be allowed to issue contract notes to clients - brokers will have to issue notes directly to them.

Sebi had in September 2003 introduced this regulation through a circular. But sub-brokers continued to issue contract notes because no model agreement among brokers, sub-brokers and clients had been framed. That has now been rectified.

On Thursday night, Sebi posted a circular on its website introducing the model tripartite agreement. Sebi has directed the stock exchanges to implement the "requirements relating to the tripartite agreement" from December 1.

As a result, say market participants, the role of the sub-broker will be diminished. A leading BSE broker says, "Once the tripartite agreement is in force, sub-brokers will be forced to issue contract notes only through the main broker."

A sub-broker says that a large number of market participants (well over 10,000) will go out of business as investors will not want to deal with them after this is implemented.

"They have confidence in us and most of them have been dealing with us for years. But direct billing by brokers will kill our business in the long-term," he adds.

Others, however, welcome the change. Says Deena Mehta, managing director, Asit C Mehta Investment Intermediaries: "The lacunae that was there in the September 2003 circular of Sebi has been removed. This is a major step towards investor protection as this will ensure direct movement of funds and securities between the broker and the investor."

This would ensure investor rights were protected and the investor protection fund of the exchanges would be available directly to investors in case of default, she added.

V Shankar, managing director, Interconnected Stock Exchange, pointed out that an exchange subsidiary issues contract notes in the name of a sub-broker, who in turn, issues confirmation memos to the client with the sub-broker acting as intermediary for settlement as of now.