In March 2025, the ownership share of domestic institutional investors in the equities space rose by 160 basis points year on year to reach an all-time high of 19.2%. They even overtook the foreign institutional investors with a USD 19.7 billion investment over the last decade. Amidst this rising trend of DII participation, it is important to explore institutional trading accounts.
Trading accounts through which large institutions like mutual funds, banks, hedge funds, pension funds, etc., buy and sell securities are called institutional trading accounts. Investments through such accounts are made on behalf of institutions rather than individual traders. This blog decodes how to open an institutional trading account. Let us begin our guide with an overview of the process.
How to Open an Institutional Trading Account?
Since institutional trading accounts cater to large organisations, rather than retail investors, they offer large volume transactions, customised analytics, advanced research, and investing tools, among other benefits.
However, the process of how to open an institutional trading account is often an unfamiliar territory. Therefore, discussed below are some broad milestones that can aid in account opening.
- Institutional Trading Account Requirements: Investors must meet particular eligibility criteria and belong to specific categories to be eligible for an institutional trading account. They need to meet some requirements relating to margin, funds, scale, nature, etc. Understanding these requirements can aid in rapid account opening.
- Compliance and Regulations: The institutional accounts are regulated by market regulators and other entities. Each country has its own compliance requirements for domestic and foreign investors. Comprehension of these legal requirements aids in avoiding future hassle.
- Choosing the right Institutional Broker Account: Just like the presence of various demat account brokers exists for retail investors, institutional investors have a wide array of trading account brokers to choose from. Each brokerage platform offers a wide variety of attractive offers and services to attract clientele.
- Preparing for Documentation: Opening an institutional trading account requires the submission of certain documents. While documentary requirements can vary from one provider to another, most remain common.
- Institutional Account Opening Process: After considering the regulatory, eligibility and other requirements, investors must consider the risks and challenges associated with such accounts. Once these considerations are done, investors can commence account opening through a brokerage platform.
Now that a brief overview of how to open an institutional trading account is done, let us begin with addressing each nuance, beginning with the eligibility criteria.
Who Can Open Institutional Accounts?
As the name suggests, institutional trading accounts are opened by institutional investors. These investors are large organisations that pool the funds of different individuals and invest them in a variety of assets. Unlike retail investors who invest their funds to earn returns for themselves, institutional investors invest the funds of other people and earn returns for them, whilst keeping a part of the profit.
Discussed below are some common types of institutional investors that can meet the institutional trading account requirements.
- Mutual Funds pool the investible corpus of various investors to invest across equity, debt or hybrid models. The funds are managed by experienced fund managers. Investors can choose either a lump sum or an SIP (systematic investment plan) to invest.
Therefore, mutual fund investors enjoy the benefits of portfolio diversification, advanced growth strategies and much more through their limited corpus.
- Hedge Funds are privately managed funds that pool the corpus of sophisticated investors to invest in high-growth or capital-saving assets through aggressive and complex techniques.
Although the concept of hedge funds is similar to that of mutual funds, they differ in target investor group, fund management technique and other aspects. Hedge funds are more exclusive and complex compared to mutual funds.
- Pension Funds are funds created from the pooled investments of employees and employers, aimed to provide a payout on maturity or retirement. These funds chase long-term growth and also prioritise capital preservation.
Although a pooled fund, it differs from others based on the nature of its investors. This distinction results in a unique investing philosophy.
- Insurance companies invest their premiums in a range of assets to acquire growth and meet investor needs. However, an insurance company requires liquidity and fund preservation, whilst earning returns.
Many other financial institutions, like banks, non-banking financial institutions, endowment funds, etc., are categorised as institutional investors and can have institutional trading accounts. However, to open such an account, the submission of certain documents is key.
Institutional Trading Account Requirements: Documentation Needed
Discussed below are some institutional trading account documentation needs that have been accumulated from various platforms.
- Company History and Existence: Documents such as the company incorporation certificate are required for account opening. Moreover, the memorandum of association and articles of association or their global equivalent, are required for disclosure. In case of registry with a specified regulator, a licence is needed.
- Ownership and Authorisation: Stakeholders with significant benefit in the company (the percentage of holding specification can vary from one country to another) need to disclose their identity and provide address proof, social security number, etc. Specific directors, agents or officers entrusted with operating the account need to provide their names and signatures. KYC (Know Your Customer) documents, like a Passport, PAN, etc., may be needed.
- Financial Statements and Tax Compliance: The prospective holder needs to offer their audited financial statements and other documentary evidence to prove tax compliance.
- Agreement or Account Opening Form: Depending upon the country and platform, the prospective customer either has to sign an agreement with the broker or fill out an account opening form as a part of the onboarding process. Along with an account opening form, an institution might also need to fill out a KYC form. Risk disclosures are present in this section, and the signatory gives their consent during this stage.
Now, let us take a detailed step-by-step look at how to open an Institutional Trading Account.
Institutional Account Opening Process Explained: Step-by-Step Guide to Account Opening
Discussed below are the steps required to open an institutional broker account. While some of them may differ from one platform to another, the steps are a generic guide to most platforms.
Step 1: The institution must identify its nature and ensure that it meets the eligibility criteria ascertained for an institutional trading account.
Step 2: After comparing the available brokerage platforms, a suitable institutional broker account must be shortlisted.
Step 3: Ensuring the availability of required documents, according to the guidelines of the regulators and platform, can aid in making the process efficient.
Step 4: Complete the KYC form, along with the necessary documentary proof.
Step 5: Next, the account opening form must be filled out and submitted along with the necessary documents and signatures.
Step 6: The platform verifies the details provided. After due diligence, the account is activated for trading.
Once the account is opened, after fulfilling the necessary institutional trading account requirements, investors commence trading. During this stage, they operate under strict regulatory guidelines, awareness of which is necessary for compliance.
Compliance & Regulatory Framework
Discussed below are some of the key compliance and regulatory requirements ascertained by regulators around the world.
- United States Securities and Exchange Commission (SEC)
According to the SEC, institutional investment managers, who manage more than USD 100 million worth of securities, are required to file Form 13F quarterly for holding disclosure. Moreover, a recent update requires filing of 13f-2 for monthly reporting of short positions in the case of equities crossing either of the following thresholds.
- USD 10 million in monthly average gross short position.
- 2.5% or more of outstanding equity.
- In the case of non-reporting company issuers, a gross short position of USD 500,000 or more.
- United Kingdom Financial Conduct Authority (FCA)
Official FCA resources and policy announcements explain the standards for client scrutiny under the Money Laundering Regulations and KYC. It also offers client classification and suitability evaluations under the Conduct of Business Sourcebook (COBS). Moreover, compliance duties such as reporting, disclosing conflicts of interest, and implementing MiFID II (Markets in Financial Instruments Directive II) regulations are also given by the FCA.
- European Union European Securities and Markets Authority (ESMA)
The ESMA regulations aim at unifying client categorisation, optimal execution responsibilities, and suitability criteria across EU member states. These parameters aid in enforcing the MiFID II requirements for institutional trading accounts across European countries that are part of the EU. Moreover, ESMA also provides Anti Money Laundering (AML) and KYC compliance guidelines.
- Securities Exchange Board of India (SEBI)
In India, a trading account can be opened with a SEBI-registered stockbroker. While some documents are mandatory, others are voluntary, implying that they are under the discretion of investors or the institutional broker account. Moreover, the regulatory authority provides directions and guidelines for both domestic institutional investors and foreign institutional investors.
A key aspect of how to open an Institutional Trading Account is choosing the right broker. Let us understand the steps to do so.
Institutional Broker Account: Choosing the Right Institutional Broker
Discussed below are some steps to ensure that institutional investors are choosing an optimal platform for their institutional trading account.
- Registration and Compliance Verification: Ensure that the brokerage platform in question has the required registrations with the designated regulatory body and does not have major compliance defaults.
- Review Technology and Features: Compare the attributes of the brokerage platform, including its analytics and research tools, with other platforms to find the optimal option.
- Prices and Offers: In case of any subscription or onboarding fees, compare the platform with its peers to understand the most cost-effective option.
- Customer Support and Review: Analyse the customer support mechanism of the platform to reduce future hassle. Exploring the reviews of the platform through various sources can aid in such analysis.
Along with these, an investor must also explore the funding and margin requirements for a seamless institutional account opening process.
Funding and Margin Requirements
The institutional investors utilise the funds pooled from their customers to finance the investments. Moreover, the margin requirements vary from one country to another. For instance, in the case of India, given below are some margin requirements, especially for institutional investors.
- In the case of the institutional transactions that are confirmed by the custodians, margins are levied on the custodians.
- For the transactions not accepted by the custodian but executed by a member, margin is levied on the member.
- The participant code used at the time of order entry is used to identify the transaction.
Now, understanding the caveats of the institutional account opening process is incomplete without looking at the intrinsic challenges and risks.
Common Challenges & Risk Management
Discussed below are some key challenges and risks associated with institutional trading account opening.
- Regulatory Compliance: Institutional investors and their trading accounts need adherence to complicated and elaborate rules that vary from one country to another.
- Cybersecurity Threats: Amidst the rising security concerns over the internet, an optimal cybersecurity framework of the brokerage platform is essential to maintain security.
- Elaborate Procedure: The process of opening a trading account can be lengthy and time-consuming for institutional investors. Therefore, it requires significant patience and know-how.
- Other Challenges: Various other roadblocks, like dominance of a few major players, economic turmoil and much more, can hinder institutional investing.
Therefore, a thorough understanding of how to open an Institutional Trading Account is crucial to avoid the roadblocks and challenges.
FAQs
Institutional trading accounts are used by large entities such as banks, mutual funds, hedge funds, pension funds, etc., to purchase and sell stocks. These accounts are used to make investments on behalf of the group rather than an individual trader. Therefore, the volume of trade and the degree of analytics are higher in the case of institutional trading accounts.
Setting up an individual trading account is simpler and less complicated compared to institutional trading accounts. Moreover, the degree of documentation required is also higher in the case of institutional accounts. The primary cause of this increase in complexity is the increased legal framework within which the companies operate, due to their large scale and impact.
Numerous domestic and foreign brokers, such as Interactive Brokers, Charles Schwab, Fidelity, and others like Centrum Broking, StoneX, and Nirmal Bang, provide institutional trading accounts for clients. These brokers offer specific amenities, including primary market access, analysis, and large-scale trading assistance to financial institutions like mutual funds, pension funds, and hedge funds.
The minimum deposits and funding requirements vary not only from one country to another, but also from one platform to another. It also depends on the nature and scale of investor concern. This deep customisation stems from the high volume and complex nature of the business. Therefore, organisations must refer to brochures and documents communicated by the trading account platform.
Several compliance checks are done for the institutions before onboarding them. The platform analyses the incorporation certificate, memorandum and articles of association to analyse the business nature. They also refer to the latest audited statements and tax compliance reports. Moreover, a reference to the identity and other details of prominent stakeholders is also utilised.
