Understanding the Regulatory Framework for Execution Only Platforms in Mutual Funds.
Recent years have seen a significant increase in the number of investors utilising digital platforms provided by SEBI licensed Investment Advisors and Stock Brokers to make direct investments in Mutual Fund schemes. These internet marketplaces provide a practical means of doing business. But there haven’t been any detailed rules for these platforms, particularly for investors who aren’t customers of the brokers or advisers. This meant that in the event of any problems, these investors would not have the same amount of protection or options.
SEBI has created a regulatory framework for Execution Only Platforms in order to allay this worry and find a compromise between convenience and safety. This framework makes ensuring that digital platforms and technologies, including those made available to non-clients by stock brokers and investment advisors, function according to predetermined rules.
Investors were at a disadvantage in the past since these platforms were unregulated. Execution Only Platforms now have a defined set of guidelines to follow according to the updated SEBI (Stock Brokers) Regulations, 1992, which were issued on January 17, 2023.
The goal of this regulatory framework is to safeguard investors and lessen the risks involved with using these platforms to invest directly in mutual fund schemes. It increases accountability, transparency, and disclosure in the way Execution Only Platforms operate.
The ease of utilising digital platforms to invest in Mutual Fund direct plans is still available to investors. Investors must, however, be mindful of the dangers associated and the regulatory framework that these platforms are subject to. Execution Only Platforms may help create a more regulated and investor-friendly environment by abiding by the revised requirements.
To fully comprehend the regulatory environment, it is essential for investors and market players to comprehend the precise requirements of the modified SEBI (Stock Brokers) Regulations, 1992.
Finally, the legal structure for execution-only platforms in mutual funds provides investors with the safety and responsibility they sorely need. It makes sure that online platforms follow established rules, creating a more secure and open environment for investing in Mutual Fund schemes’ direct plans.
Stock exchanges are required by the Securities and Exchange Board of India (SEBI) to provide a framework for Execution Only Platforms (EOPs), with certain exceptions for Category 2 EOPs. Trading regulations, investor protection funds, clearing and settlement guidelines, client funds pooling requirements, self-clearing membership criteria, risk management framework, contract note issuance requirements, and funds & securities disclosures are all excluded.
In order to fulfil these recommendations, stock exchanges must revise their bylaws, rules, and regulations. They also have to provide SEBI periodic reports. They are also in charge of keeping an eye on EOPs carried out inside the EOP section.
It has been mandated that the Association of Mutual Funds in India (AMFI) make the required changes and provide rules for Category 1 EOPs. They are also in charge of keeping an eye on EOPs that are registered with AMFI.
The SEBI has the authority to publish this circular, which will take effect on September 1, 2023, in order to safeguard investor interests and control the securities market.
