The Securities and Exchange Board of India has said that the government has notified Electronic Gold Receipts (EGRs) as securities and SEBI (Vault Managers) Regulations, 2021, paving the way for operation of gold exchanges in India Is. An EGR means an electronic receipt that is issued based on the underlying physical gold deposit.
The market regulator also released the framework for exchange of gold.
Gold Exchange will be a national platform for buying and selling of EGR with standardized gold underlying in India. EGR will be issued against physical gold. As per the SEBI framework, investors can trade in EGR on existing stock exchanges as well as on the proposed gold exchange.
According to the circular, the entire transaction on the gold exchange is divided into three phases – conversion of physical gold into EGR, trading of EGR on the stock exchange and conversion of EGR into physical gold.
SEBI will regulate the entire ecosystem of the proposed gold exchange and will be the sole regulator for the gold exchange including vaulting, acknowledging, gold quality and delivery standards.
Meanwhile, stock exchanges have been allowed to trade and/or initiate contracts with different denominations to convert EGR into gold.
For the ease of investors, SEBI has brought in fungibility and inter-operability among Vault Managers.
As per the framework, the EGR generated will not be linked with a unique bar reference number of physical gold. In addition, physical gold deposited in one location can be withdrawn from different locations in the same or different Vault Managers.
“The provisions would enable the depository to withdraw physical gold from the preferred vault location of the buyer and, possibly, save on the cost of withdrawal of gold from the safes,” Sebi said in the circular.
According to experts, in the current format, gold transactions outside recognized vaulting loops are all based on bilateral agreements and trust.
“For gold jewelery manufacturers and retailers, this is going to be one of the most efficient ways to manage their inventory requirements. This is seen to remove the risk related to counterparty risks such as cancellation of delivery, providing transparent pricing searchable through an exchange platform, providing access to a bar of standards that verifies purity, weight, quality and to be responsibly sourced,” said Sudhish Nambiath, Head, India Gold Policy Center at IIM Ahmedabad.
“As the exchange evolves, it can also be a platform for various service providers to facilitate investors to save gold in the form of EGR,” he added.
Clearing Corporations are tasked with empaneled/accrediting agencies to check the purity of gold. However, the charges for Assay, Transport and Assay will be borne by the Beneficiary Owner.
In addition, as per the rules, storage and withdrawal fees will be levied by the vault managers, which will have to be disclosed first.
In the circular, the regulator also said that investors should be encouraged to use their reliable means of transport to move gold from the vault to their preferred location.
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