Direct plan platforms to charge a flat transaction fee either from AMCs or investors


Execution Only Platforms (EOPs) will become reality by September 1, 2023. In a circular, SEBI has introduced the concept of EOPs, which essentially says that digital platforms offering direct plans free of cost will now have to charge a flat transaction fee either from AMCs or directly from investors.


SEBI has introduced two set of norms of EOPs – category 1 EOPs can become agent of AMCs and charge transaction fee from them by obtaining license from AMFI and category 2 EOPs can become representative of investors and charge them directly by taking stock broking license.


SEBI has defined EOP as any digital or online platform, which facilitates transactions such as subscription, redemption and switch transactions in direct plans of the schemes of mutual funds.


All players who are into distribution of direct plan will have to obtain EOP license by December 01, 2023. Also, industry platforms like MF Central, MF Utilities, BSE Star MF and NSE NMF II will also have to obtain EOP license.


Further, the market regulator has clarified that platforms provided by SEBI RIAs and stock brokers to their advisory or broking clients are not covered under EOP framework.


Let us look at the other key details of the new regulation on this new distribution channel:


  • While Category 1 EOPs will have to obtain license from AMFI, category 2 EOPs will have to get stock broking license under SEBI (Stock Brokers) Regulations


  • Category 1 EOPs will act agent of AMCs whereas category 2 EOPs will act as agent of investor


  • EOPs will have to facilitate non-financial transaction like change of email id or phone number, bank account and so on


  • They cannot deal in regular plans of mutual funds


  • Category 1 EOPs can provide their services to other intermediaries


  • Category 1 EOPs will have to abide by AMFI norms to onboard clients. AMCs will be held responsible for carrying out KYC of investors coming through this channel


  • Category 2 EOPs will have to comply with KYC norms to onboard new clients. Further, they should have access to KYC data through KRAs


  • Both category 1 and 2 EOPs can charge transaction fee from AMCs and investors, respectively subject to upper limit capped by AMFI and stock exchange


  • AMCs cannot adjust such a fee with the scheme i.e. they cannot charge it to the scheme


  • Both EOPs will have to ensure comprehensive risk management, access control and prevent unauthorised access


  • EOPs will have to ensure all transaction are dealt in a fair and non-discriminatory manner


  • EOPs will have to formulate data protection policy, ensure data privacy and confidentiality and maintain all data


  • Entity will have to maintain arm’s length relationship with clients to avoid conflict of interest if performing multiple activities


  • If such an entity is into MF distribution at group level, they will have to ensure family level segregation between direct and regular business


  • Category 1 EOPs will have to route transaction directly through AMCs or respective RTAs whereas category 2 EOPs can route MF transaction through stock exchange platforms


  • Both EOPs cannot display advertisement of MF scheme or brand


  • Pooling of funds will not be allowed


  • EOP will have to disclose – name of MF scheme, name of fund manager, investment objective, scheme performance, scheme details, risk-o-meter among other things


  • EOP cannot list products based on ratings or rankings



Source- Cafemutual

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