Sebi Issues Guidelines For Operationalising Gold Exchanges

A common interface will be developed by depositories, which will be made accessible to all the entities -- vault managers, depositories, stock exchanges, and clearing corporations

The new framework will come into force with immediate effect, the Sebi said. Image: Getty

New Delhi: Securities and Exchange Board of India (Sebi) has come out with a framework for operationalising the gold exchange, wherein the yellow metal will be traded in the form of electronic gold receipts (EGRs).

The stock exchange desirous of trading in EGRs may apply to Sebi for approval of trading in the new segment, the market regulator said in a circular.

The bourses can launch contracts with different denomination for trading or conversion of EGR into gold. Under the new framework, the entire transaction has been divided into three tranches -- creation of EGR; trading of EGR on stock exchange and conversion of EGR into physical gold.

A common interface will be developed by depositories, which will be made accessible to all the entities -- vault managers, depositories, stock exchanges, and clearing corporations.

The new framework will come into force with immediate effect, the Sebi said.

This comes after the government, through a notification on December 24, declared "electronic gold receipts" as 'securities' under the Securities Contracts (Regulation) Act 1956.

Separately, the regulator through a notification on December 31, notified rules for vault managers paving the way for operationalising gold exchange.

According to the Sebi, supply of the physical gold, to be converted into EGR, will be the fresh deposit of gold, coming into the vaults, either through imports or through stock exchange accredited domestic refineries.

The existing deposit of gold lying in the vaults, which meets the criteria and has never been out of the vaulting infrastructure, can be considered for conversion into EGR.

Vault managers will have to ensure that 'gold' to be converted into EGR meets the criteria.

The gold which complies either with LBMA Good Delivery Standard or with the India Good Delivery Standard, or any other standard specified by Sebi, will be eligible under this framework.

To lower the costs associated with withdrawal of gold from the vaults, EGRs have been made "fungible" and "interoperability between vault managers" have been allowed.

To increase the reach of gold exchange, all existing branches of vault managers may be allowed as 'collection and/or withdrawal center', which meets the safety standards, as specified by Sebi.

The storage and withdrawal charges will be levied by the vault managers and be collected by the depository from the beneficial owner of EGRs, for onward payment to the vault managers.

However, Sebi or vault manager will not be responsible for any dispute arising from transportation of gold, irrespective of the choice of logistics service provider.