BSE is ready with technology to present electronic gold receipts (EGR) on its platform. This will help in creating a uniform price structure for the precious metal across the country, BSE Chief Business Officer Sameer Patil said on Sunday.
Patil told PTI that the stock exchange will obtain necessary internal clearances and apply to markets regulator SEBI for the launch of a new class of security on its platform. He added that the exchange had been working on the technology for a very long time and was awaiting in-principle approval to take it further.
The move comes after SEBI’s board on Tuesday approved a proposal to exchange gold, in which the yellow metal would be traded in the form of EGR and would help in creating a transparent domestic spot price discovery mechanism. India currently only trades in gold derivatives and gold ETFs, unlike many other countries that have spot exchanges for physical trading in gold.
The instruments representing gold will be called Electronic Gold Receipts (EGRs) and will be notified as securities, with trading, clearing and settlement characteristics similar to those of other securities currently available in India.
BSE Had made several presentations to the government and regulators on how the process would work. These were related to how various participants including banks, vaults, wholesalers, retailers, importers, exporters etc. would participate in this ecosystem.
Like shares, these EGRs will be held in demat form and can be converted into physical gold if required, Patil said. To enable trading in physical gold, EGR (backed by physical gold) will be traded and settled on stock exchanges.
BSE Chief Business Officer said that the entire trading will be done in three phases which include conversion from physical gold to EGR, trading of EGR and again conversion of EGR to physical gold. To begin with, BSE may plan to launch EGRs in denominations of 1 kg and 100 grams and convert it into physical gold. To attract retail investors, the EGR in smaller denominations of 50 gm, 10 gm and 5 gm will also be launched in a phased manner.
The source of supply of physical gold to be converted into EGR will be fresh deposits of gold, either through imports or through domestic refineries recognized from stock exchanges in the vaults. The customer can convert physical gold into EGR by depositing physical gold at the designated delivery center. The exchange will list Vault Service Providers (VSPs) based on the guidelines laid down by SEBI.
Similarly, customers can redeem the back of EGR in physical gold, and the process is complete. An interface will be developed between Vault Managers (of physical gold), Depositories (who hold EGR in Demat) and Stock Exchanges and Clearing Corporations that approve trading.
The move is expected to ease the current market inefficiencies present in bullion trading and can act as a bridge in integrating spot gold trading with derivatives markets and creating a transparent platform for bullion trading.
In addition, single point trading for both spot and derivatives will provide scale, liquidity and better pricing for all market participants by reducing costs and cycle times.
In addition, trading in EGR will contribute to the existing programs of gold monetization such as the Gold Monetization Scheme (GMS), gold bonds and gold deposits.
In the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced the setting up of Gold Spot Exchange and SEBI will be the designated regulator for the proposed gold exchanges.
(with PTI input)
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