Sebi issues guidelines for operationalizing gold exchanges in India

What is the news?

Government of India has ​​notified the Securities and Exchange Board of India (Vault Managers) Regulations, 2021 to create Electronic Gold Receipts (EGRs).

What are Electronic Gold Receipts (EGRs)?

These are electronic receipts issued on the basis of a deposit of underlying physical gold. This would pave the way for the operationalization of a gold exchange in India.  

What is Gold Exchange?

Gold Exchange would be a national platform for buying and selling EGRs issued against physical gold. Investors can trade in EGRs on stock exchanges and the proposed gold exchange.

​​The transaction in a gold exchange has been divided into three parts—conversion of physical gold into EGR, trading of EGR on a stock exchange and conversion of EGR into physical gold.

Regulated by: SEBI would regulate the entire ecosystem of the proposed gold exchange. It would be the sole regulator for the exchange, including for vaulting, assaying gold quality and fixing delivery standards.

What will be the key features of Gold Exchange?

Firstly, Stock exchanges can launch contracts of different denominations for trading and conversion of EGR into gold. 

Secondly, SEBI has brought in fungibility and interoperability between vault managers for the ease of investors. 

Thirdly, an EGR will not be linked with a unique bar reference number of the physical gold.

Fourthly, physical gold deposited at one location can be withdrawn from a different location of any vault manager.

What are the benefits of Gold Exchange?

Gold exchange is expected to offer a host of benefits for the value chain participants as well as for the entire gold market ecosystem such as efficient and transparent price discovery, investment liquidity, assurance in the quality of gold among others.

Source: This post is based on the article “Sebi issues guidelines for operationalizing gold exchanges in India” published in Livemint on 11^th January 2022