SEBI Unveils Framework For Mobilising Gold Exchanges

Securities and Exchange Board of India (SEBI) has unveiled a framework for making operational gold exchanges which will facilitate trading of yellow metal in the form of electronic gold receipts (EGRs).

The stock exchanges interested in EGRs may apply to SEBI for approval of trading in the new segment, the 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, 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.

As per the circular, 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.

SEBI further said that clearing corporations will 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.

However, the charges towards assaying, transportation will be borne by such beneficial owner. Such assaying charges will be disclosed upfront to the public at large.

SEBI said investors will have to be encouraged to utilise their own trusted means of transportation for movement of gold from vaults to their preferred location. To facilitate the same, vault managers, at their discretion, may provide a list of logistics service providers on their website with relevant contact details.

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.