Recently, the Securities and Exchange Board of India (SEBI) issued a circular, creating a new category of intermediaries called execution-only platforms (EOPs).
About Execution only platform (EOP)
- It is a digital or online platform which facilitates transactions such as subscription, redemption and switch transactions in direct plans of schemes of mutual funds.
- Till now, there was no specific framework available for technology/digital platforms (including platforms provided by Investment Advisers/Stock Brokers to non-clients) to provide execution-only services in direct plans of mutual fund schemes.
- As per the new SEBI’s new guidelines, no entity would be allowed to operate as an EOP without obtaining registration from SEBI or the Association of Mutual Funds in India (AMFI).
- Categories of EOP:Â The capital markets regulator has divided EOPs into two categories.
- Category 1 EOPs: These would need to be registered with AMFI, the mutual fund industry body.
- Under this category, the EOPs would act as an agent 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 may act as an aggregator of the transactions in direct plans of schemes of mutual funds and provide services to investors or other intermediaries.
- Category 2 EOPs: These would need to be registered as a stock broker with SEBI and can operate as an agent of investors and operate only through the platforms provided by the stock exchanges.
What is Mutual Fund?
- It is a pool of money managed by a professional Fund Manager.
- It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.