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TMI BlogRegulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual FundsX X X X Extracts X X X X X X X X Extracts X X X X ..... nology/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 and to obtain data feeds with respect to such transactions. Thus, while the investors may find it convenient to avail the services of such online platforms, investors who are not clients of such intermediaries under the above specified Regulations may not have recourse or protection for the risks associated with respect to such transactions. Therefore, a need was felt to strike a balance between investor convenience and investor protection. 3. Pursuant to public consultation and discussions in the Mutual Funds Advisory Committee, it has been decided to prescribe a framework for Execution Only Platforms for transacting in direct plans of schemes of Mutual Funds. In this regard, the SEBI (Stock Brokers) Regulations, 1992 (link) have been amended and notified on January 17, 2023. 4. The comprehensive framework for Execution Only Platforms ('EOPs') is specified at Annexure A to this circular. 5. The Stock Exchanges shall enact appropriate framework for EOP segment wherein the following requirements sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SEBI registered Investment Advisors and Stock Brokers to their advisory or broking clients shall not be covered under the EOP framework. 1.3. No entity shall operate as an EOP without obtaining registration from SEBI or the AMFI, as the case may be and in the manner specified herein. 1.4. The entity shall also facilitate non-financial transactions including change of email id or contact number or bank account details on its platform with respect to Mutual Funds. 1.5. The entity shall not provide services related to regular plans of schemes of Mutual Funds on its platform. 1.6. Any entity providing digital or online platform which facilitates transactions in direct plans of schemes of Mutual Funds, on or prior to this circular coming into force, shall apply for the relevant registration/membership, as the case may be, within 3 months from the date of this circular coming into force i.e., September 01, 2023. 2. Categories of EOP Any entity desirous of operating as an EOP shall obtain registration under one of the following two categories: 2.1. Category 1 EOP a) The entity shall obtain registration from AMFI. b) The entity shall be a body corporate. c) The entity sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements at the time of on-boarding investors on its platform and take necessary steps including verifying the identity of its investors by requiring them to submit necessary documents. b) have access to the KYC data of the investors available with the KYC Registration Agencies (KRAs) for on-boarding of investors. c) carry out necessary due diligence and ensure that investor signs a "Rights and Obligation" document as specified by Stock Exchanges before availing its services. 4.1.2. For Category 1 EOPs, the requirements with respect to on-boarding of investors shall be as specified by AMFI. 4.1.3. The responsibility of ensuring compliance with KYC requirements, with respect to transactions executed through both categories of EOPs by investors in Mutual Funds, shall lie with the AMCs. 4.2. Rights and obligations 4.2.1. As Category 1 EOP, the entity shall enter into agreement(s) with the AMCs which should clearly define their rights and obligations relating to EOP services. Further the entity shall have an objective, fair and transparent policy for providing execution services for products of AMCs. 4.2.2. As Category 2 EOP, the entity shall enter into necessary arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or with any third party, only with the specific consent of the investors. 6.3. As Category 1 EOP, the entity shall ensure compliance with cyber security and cyber resilience requirements, as specified by AMFI. As Category 2 EOP, the entity shall ensure compliance with the cyber security and cyber resilience framework for Stock Brokers, as prescribed by SEBI from time to time. 7. Grievance Redressal 7.1. For Category 1 EOPs, the grievance redressal mechanism shall be as prescribed by AMFI. 7.2. For Category 2 EOPs, the grievance redressal mechanism shall be as prescribed for Stock Brokers from time to time i.e., through SCORES, mediation and arbitration mechanism. 8. Handing conflict of interest The entities under both categories of EOPs shall ensure compliance with the following: 8.1. Maintain arm's length relationship, if performing multiple activities within the same entity, so as to avoid conflict of interest. 8.2. Maintain investor level segregation between EOP services and distribution services for Mutual Fund products, at the entity's group level. Thus, an investor at the EOP's group level may either avail EOP services for transacting in direct plans or distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystems, data and network, to appropriately support their operations and manage the associated risks. 9.2.2. have adequate and suitable systems in place to disseminate information to investors pertaining to orders placed on a real-time or a near real-time basis. 9.2.3. have the organizational capabilities, technology and systems and safeguards for maintaining data privacy and preventing unauthorized sharing of data. 9.2.4. establish appropriate safeguards and procedures to deal with exigencies including malfunctions or erroneous use of their systems, or other unforeseen situations. 9.2.5. make their platforms available for transactions at all times, on a continuous basis. 10. Disclosure related requirements 10.1. Display of advertisements 10.1.1. The entity under both categories of EOPs shall not display any advertisement regarding any Mutual Fund scheme on their platform. Further, they shall not display any proxy/surrogate/common brand related advertisement on their platform. 10.1.2. With respect to advertisements of the EOPs on other websites/applications/portals/media/channels, the entity registered as Category 1 EOP shall ensure compliance with the advertisement code p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AMCs (directly or through AMFI) shall ensure periodic monitoring of the EOPs under their supervision with respect to compliance with the requirements mentioned in this circular and also bring to the notice of SEBI, any instances of non-compliance. 10.7. As Category 1 EOP, the entity shall follow the code of conduct as specified by AMFI. 11. Pooling of Funds The entities under both categories of EOPs shall ensure compliance with relevant provisions including Chapter 16 of Master Circular for Mutual Funds dated May 20, 2023 regarding discontinuation of usage of pool accounts for transactions in units of Mutual Funds. 12. Maintenance of books of accounts, records, etc. Regulation 17(1A) of the SEBI (Stock Brokers) Regulations, 1992 provides that a Stock Broker in the EOP segment shall keep and maintain the books of account, records and documents, as may be specified by SEBI. Accordingly, as Category 2 EOP, the entity shall keep and maintain records as specified at Annexure - A2 for a minimum period of five years. As Category 1 EOP, the entity shall keep and main-tain the books of account, records and documents, in the form and manner specified by AMFI. 13. Existing platforms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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