Under SEBI's regulatory framework for Execution Only Platforms (EOP) facilitating transactions in direct plans of mutual funds, how are Category 1 and Category 2 EOPs distinguished?

[ A ]Category 1 EOPs sell only close-ended debt schemes, while Category 2 EOPs sell only physical gold bullion.

[ B ]Category 1 EOPs register with AMFI and act as agents of AMCs, whereas Category 2 EOPs register as Stock Brokers with SEBI and act as agents of investors through stock exchange platforms.[ CORRECT ]

[ C ]Category 1 EOPs can provide investment advisory services for a fee, while Category 2 EOPs are banned from digital operations.

[ D ]Category 1 EOPs operate without any registration, while Category 2 EOPs are registered directly with the Reserve Bank of India.

Takeaway

Option B is correct: Category 1 EOPs register with AMFI and act as agents of AMCs, whereas Category 2 EOPs register as Stock Brokers with SEBI and act as agents of investors through stock exchange platforms.

Derivation

SEBI's EOP framework classifies digital platforms into two categories: Category 1 EOPs must obtain registration from AMFI, act as agents of AMCs, integrate with AMCs/RTAs, and can act as transaction aggregators. Category 2 EOPs must obtain registration as Stock Brokers under SEBI (Stock Brokers) Regulations in the EOP segment, operate as agents of the investor, and route transactions through stock exchange platforms. This question tests candidate knowledge of digital intermediary regulations. The common pitfall is assuming EOPs can provide investment advice or operate without formal registration.

Why the others fail

A — Category 1 EOPs sell only close-ended debt schemes, while Category 2 EOPs sell only physical gold bullion.

EOP categorization is based on registration authority and agency status for direct plans, not by underlying asset classes like gold.

C — Category 1 EOPs can provide investment advisory services for a fee, while Category 2 EOPs are banned from digital operations.

EOPs are strictly execution-only mechanisms for direct plans and are not covered under investment advisory registration.

D — Category 1 EOPs operate without any registration, while Category 2 EOPs are registered directly with the Reserve Bank of India.

All EOP entities must be registered either with AMFI (Category 1) or SEBI (Category 2); operating without registration is prohibited.