The Securities and Exchange Board of India (SEBI) has issued Circular No. SEBI/HO/MRD/POD-III/CIR/2023/165, dated October 06, 2023, addressing the requirement of Base Minimum Capital Deposit (BMC) for Category 2 Execution Only Platforms (EOPs) operating within the stock exchange segment. This circular imposes a significant regulatory change impacting entities in the financial market.
SEBI had earlier outlined the regulatory framework for Execution Only Platforms (EOPs) to facilitate transactions in direct plans of schemes offered by Mutual Funds through digital or online platforms. EOPs are platforms that enable activities such as subscription, redemption, and switch transactions in these Mutual Fund schemes.
Entities wishing to operate as EOPs can do so under one of two categories:
Category 1 EOP: These entities act as agents of Asset Management Companies (AMCs) and can provide services to investors and other intermediaries. Category 1 EOPs are not required to maintain a deposit with AMFI for their operations.
Category 2 EOP: Category 2 EOPs must obtain registration as Stock Brokers under the EOP segment of Stock Exchanges. They operate as agents of investors directly and do not aggregate transactions in direct plans of Mutual Funds. Category 2 EOPs are subject to stock broker requirements, including the maintenance of deposits with stock exchanges.
Minimum Capital Deposit Requirement
SEBI’s recent circular focuses on the BMC deposit requirement for Category 2 EOPs. BMC is a deposit made by stock exchange members against which no exposure for trades is allowed.
As per the circular, members of stock exchanges operating exclusively in the EOP segment (Category 2 EOPs) are required to maintain a BMC deposit of Rs. 10 Lakhs with the respective stock exchange. However, for members registered in multiple segments on the same stock exchange, the BMC deposit requirement will not be additive. Instead, the highest applicable BMC deposit, regardless of the segment, will apply.
This modification in the minimum capital deposit requirement aligns with SEBI’s aim to strengthen regulatory measures and protect the interests of investors in securities.
Conclusion
SEBI’s Circular No. SEBI/HO/MRD/POD-III/CIR/2023/165, issued on October 06, 2023, imposes a Base Minimum Capital Deposit (BMC) requirement of Rs. 10 Lakhs for Category 2 Execution Only Platforms (EOPs) operating in the stock exchange segment. This change aims to enhance regulatory oversight and ensure the financial stability of entities in this category. It is crucial for affected market participants to promptly comply with this circular’s provisions and take necessary actions to meet the BMC deposit requirement.
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Securities and Exchange Board of India
Circular No. SEBI/HO/MRD/POD-III/CIR/2023/165 Dated: October 06, 2023
To,
All Recognized Stock Exchanges
Sir / Ma’am,
Sub: Requirement of Base Minimum Capital Deposit for Category 2 Execution Only Platforms
1. SEBI vide circular No. SEBI/HO/IMD/IMD-PoD-1 /P/CIR/2023/86 dated June 13, 2023 had prescribed the regulatory framework for Execution Only Platforms (EOP) for facilitating transactions in direct plans of schemes of Mutual Funds through their technology or digital platforms. An EOP for facilitating transactions in direct plans of schemes of Mutual Funds, means any digital or online platform which facilitates transactions such as subscription, redemption and switch transactions in direct plans of schemes of Mutual Funds.
2. Any entity desirous of operating as an EOP can obtain registration under one of the following two categories:
a. Category 1 EOP: Entities desirous of operating as Category 1 EOP are required to obtain registration from AMFI and shall act as an agent of AMC(s) and can provide service to investors and other intermediaries. Category 1 EOPs shall follow the guidelines specified by AMFI in consultation with SEBI. Category 1 EOPs are not required to maintain any deposit with AMFI for operating as an EOP.
b. Category 2 EOP: Category 2 EOPs are required to obtain registration as a Stock Broker in terms of SEBI (Stock Brokers) Regulations, 1992 under the EOP segment of Stock Exchanges. Category 2 EOPs shall operate as an agent of investor and provide services to investors directly and shall not act as an aggregator of the transactions in direct plans of schemes of Mutual Funds. They shall follow various requirements applicable to stock brokers, including maintenance of deposit with the stock exchange.
3. SEBI vide Circulars No. SMD/SED/RCG/270/96 dated January 19, 1996, No. MRD/DoP/SE/Cir-07/2005 dated February 23, 2005 and CIR/MRD/DRMNP/36/2012 dated December 19, 2012 had prescribed the requirement of Base Minimum Capital (BMC) deposit for stock brokers trading on stock exchange. BMC is the deposit given by the member of the stock exchange against which no exposure for trades is allowed.
4. In this regard, it has been decided that the members of stock exchanges functioning only in EOP segment (Category 2 EOP) shall maintain a sum of Rs. 10 Lakhs with the stock exchange as BMC deposit. However, for members having registration of more than one segment on the same stock exchange, the BMC deposit requirement shall not be additive for such number of segments and shall be the highest applicable BMC deposit, across various segments.
5. The SEBI circulars specified at paragraph 3 above, stand modified suitably. All other relevant provisions with respect to BMC Deposit shall continue to remain
6. The provisions of this circular shall be implemented immediately.
7. Stock exchanges are directed to:
a. take necessary steps and put in place necessary systems for the implementation of the above;
b. make necessary amendments to the relevant bye-laws, rules and regulations, wherever applicable, for the implementation of the above; and
c. bring the provisions of this circular to the notice of market participants (including investors) and also disseminate the same on their website.
8. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
9. This Circular is available on SEBI website at www.sebi.gov.in .
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel No.: 022-26449586
Email: hrsahoo@sebi.gov.in
