In order to provide services for direct plans of mutual fund schemes, suppliers of execution-only platforms (EOPs) must register, according to a new regulation put in place by the Securities and Exchange Board of India (Sebi). No business may act as an EOP without first acquiring registration from Sebi or the Association of Mutual Funds in India (AMFI), as applicable, according to the circular released on Tuesday.

While using these online platforms may be convenient for investors, according to Sebi, people who are not clients of these intermediaries may not be protected from the dangers involved in their transactions.

In order to provide execution-only services in direct plans of Mutual Fund schemes and to obtain data feeds with regard to such transactions, there is currently no specific framework available for technology/digital platforms (including platforms provided by Investment Advisers/Stock Brokers to non-clients).  As a result, even while using such online platforms may be advantageous for investors, those who are not clients of the intermediaries under the aforementioned Regulations may not have any recourse or protection against the dangers related to such transactions. As a result, it was felt that a balance between investor convenience and investor protection was necessary, according to the Sebi circular.

According to the circular, in order to create agreements with asset management companies (AMCs) for Category 1 EOPs, the business must spell out each party's obligations in detail. Furthermore, the organisation should have a fair, impartial, and open policy for providing execution services for AMCs' goods. The entity must make the necessary agreements with the Stock Exchanges regarding Category 2 EOPs.

Additionally, the orders put in by investors through this channel must go directly to the AMCs and/or RTAs authorised. The platforms offered by the Stock Exchanges will be used to route investor orders placed through Category 2 EOPs. Investor orders made through either category of EOPs will be carried out right away.

“Provide an interactive tool for the investors to screen or filter various schemes based on the criteria selected by the investor including past  performance, AUM, etc., and ensure that there is no auto display of recommendation or ranking of any of the schemes. If the criteria for selection include research reports or opinions, the same shall be only by SEBI registered intermediaries along with suitable disclosures regarding the source. Such research reports or opinions should disclose the methodology used for such recommendations. The aforesaid tool shall not itself provide any research reports or opinions or perform any research based or investment advisory activity.” states Sebi circular.

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