The Securities and Exchange Board of India (SEBI) on Monday released the framework for gold exchanges in the country.
“Government of India has declared ‘electronic gold receipts’ as ‘securities’ under Section 2(h)(iia) of the Securities Contracts (Regulation) Act 1956, and vide Gazette notification dated December 31, 2021, SEBI (Vault Managers) Regulations, 2021, have been notified, paving the way for operationalizing of gold exchange,” the market regulator said.
The stock exchanges that desire to trade in electronic gold receipts (EGRs) will have to apply with SEBI for the approval of trading of EGRs in a new segment.
EGR is essentially the instrument for trading in gold exchange. New as well as already existing and recognised stock exchanges will be able to launch and deal in EGRs in a new segment.
The entire transaction will be in three tranches – creation of EGR, trading of EGR on stock exchanges and conversion of EGR into physical gold.
A common interface will be developed by depositories, which will be made accessible to vault managers, depositories, stock exchanges and the clearing corporations, according to the framework.
The supply of physical gold to be converted into EGR would have to be gold coming into the vaults either through imports or through stock exchange accredited domestic refineries, SEBI further said.
The vault manager will have to ensure that no EGR is created without the presence of corresponding gold in the vaults. The EGR shall reflect in the demat account of the beneficial owner maintained with the depository participant.
Furthermore, beneficial owner of EGR can obtain physical gold against the EGR by requesting the depository for the same, which, in turn shall forward such requests to the vault manager. The vault manager after delivering the gold to the beneficial owner and simultaneously extinguishing such EGR, will have to share the required data with the depository for reconciliation.
In a move that will benefit investors, SEBI has also brought in fungibility and inter-operability between vault managers. By allowing inter-operability, the physical gold deposited at one location of a vault manager, can be withdrawn from different location of same or different vault manager depending on the availability of physical gold.
Clearing corporations will have to empanel assaying agencies for checking the purity of gold, if required by the beneficial owner of the EGR at the time of withdrawal of gold from the vaults. But, the charges for the same will have to be borne by the beneficial owner. Also, investors will be encouraged to utilise their own trusted means of transportation for moving gold from vaults to their locations, SEBI said.
