SEBI issues new regulation for Execution-only platforms for direct mutual funds

The new framework aims to regulate EOPs in the context of direct mutual fund investing.

Under the circular dated June 13, the Securities & Exchange Board of India (SEBI) has mandated that all execution-only platforms (EOPs) operating in direct plans of mutual fund schemes must obtain registration either from SEBI or the Association of Mutual Funds in India (AMFI).

Previously, there was no specific regulatory framework governing the provision of execution-only services by technology/digital platforms, including those offered by Investment Advisers/Stock Brokers to non-clients.

This new requirement aims to ensure compliance and accountability in the operations of EOPs within the mutual fund industry.

Notably, the platforms offered by investment advisors and stock brokers registered with SEBI, exclusively catering to their advisory or broking clients, are not subject to the EOP framework.

These platforms fall under a separate category and are governed by the existing regulations applicable to investment advisors and stock brokers.

SEBI has categorized EOPs into two groups. Category 1 EOPs must register with AMFI and act as agents of AMCs, facilitating transactions in mutual funds. They can integrate their systems with AMCs and/or authorized RTAs, serving as aggregators for direct plan transactions and offering services to investors and intermediaries.

Category 2 EOPs, on the other hand, must register as stock brokers with SEBI and can only operate through platforms provided by stock exchanges. They act as agents of investors and operate within the stock exchange platforms.

These entities are not permitted to function as transaction aggregators for direct plans of mutual fund schemes but can offer services directly to investors. To operate as an EOP, entities must obtain registration under one of the two available categories.