The Securities and Exchange Board of India (SEBI) recently introduced a new category of intermediaries known as execution-only platforms (EOPs). These platforms, whether digital or online, facilitate various transactions such as subscription, redemption, and switch transactions in the direct plans of mutual fund schemes.
Notably, prior to this circular, there was no specific framework for technology/digital platforms (including those provided by Investment Advisers/Stock Brokers to non-clients) to offer execution-only services for mutual fund schemes’ direct plans.
Under the new guidelines issued by SEBI, operating as an EOP would require registration from either SEBI or the Association of Mutual Funds in India (AMFI).
The EOPs have been categorized into two types:
- Category 1 EOPs: These platforms must register with AMFI, which is the mutual fund industry body. They act as agents of asset management companies (AMCs) and integrate their systems with AMCs and/or Registrar and Transfer Agents (RTAs) authorized by AMCs to facilitate transactions in mutual funds. These entities can also serve as aggregators of transactions in direct plans of mutual fund schemes and provide services to investors or other intermediaries.
- Category 2 EOPs: These platforms need to be registered as stockbrokers with SEBI and operate as agents of investors, using platforms provided by the stock exchanges.
A brief explanation of Mutual Funds is also provided. These funds are managed by professional Fund Managers and collect money from multiple investors sharing a common investment objective, which is then invested in equities, bonds, money market instruments, and/or other securities.
