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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 ..... ck Brokers) Regulations, 1992 . 2. There is no specific framework presently 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any digital or online platform which facilitates transactions such as subscription, redemption and switch transactions in direct plans of schemes of Mutual Funds. 1.2. The platforms provided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, 1992. 3.2. As Category 1 EOP, the entity shall fulfill the criteria, as specified by AMFI. 4. On-boarding and integration 4.1. On-boarding of investors 4.1.1. As Category 2 EOP, the entity shall: a) comply with Know Your Client (KYC) 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he EOP, risk management and control, liability framework for EOP in case of breach of the policies, restrictions or other requirements that may apply for accessing the platform. 6.2. The entities under both categories of EOPs may share investors data with their other departments/divisions, their group entities 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 multipl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the platforms provided by the Stock Exchanges. 9.1.3. The order of the investors placed through both categories of EOPs shall be executed on immediate basis. 9.2. The entities under both categories of EOPs shall: 9.2.1. maintain robust technology infrastructure with a high degree of reliability, availability, scalability and security in respect of their systems, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation or reports as may be specified by AMFI. 10.4.3. As Category 2 EOPs, the entities shall submit information or reports as may be specified by SEBI or Stock Exchanges. 10.5. The entities under both categories shall keep the AMCs and Stock Exchanges or AMFI, as the case may be, informed of events resulting in disruption of activities or market abuse without undue delay. 10.6. The Stock Exchanges or AMFI and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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