The Securities and Exchange Board of India (SEBI) has introduced new regulations for execution-only platform (EOP) providers of mutual fund schemes that outline the categorization of EOPs, commission charges, transaction fees, and specific restrictions. 

EOPs are prohibited from selling regular plans of mutual funds on their platforms and advertising specific mutual funds or schemes. SEBI has also directed EOPs to refrain from advertising particular mutual funds, aligning with the recent advertisement code for investment advisors. The discontinuation of using pool accounts for mutual fund transactions also applies to EOPs.

The market regulator proposed the need for a framework for EOPs in December 2022, and now, detailed guidelines have been provided, set to come into force on September 1 2023. The aim is to balance investor convenience with protection, ensuring that those not clients of these intermediaries have recourse and protection for the associated risks.

Digital platforms which allow investors to transact in direct plans of mutual funds must comply with the new rules set by SEBI. It’s important to note that the regulations do not affect online platforms operated by SEBI-registered investment advisors.

Under the new framework, EOPs are divided into two categories. Category 1 EOPs will act as asset management companies (AMC) agents and must be registered with the Association of Mutual Funds in India (AMFI). Category 2 EOPs will act as agents of investors and must be registered as stock brokers with SEBI. Existing platforms must obtain suitable registration under one of the EOP categories by September 1, 2023.

Regarding fees, Category 1 EOPs can charge a flat fee to AMCs, unrelated to the trade amount. Category 2 EOPs will charge a flat fee to investors. The fee structure, determined by AMFI and stock exchanges, should be nominal, and AMCs cannot charge schemes for fees paid to EOPs.

SEBI has called for stock exchanges and AMFI to develop appropriate frameworks and monitor the operations of EOPs under their respective segments.