Sebi proposes gold exchange for ETFs

New Delhi Markets regulator Sebi on Monday proposed an elaborate framework for setting up a gold exchange wherein the yellow metal will be traded in the form of electronic gold receipts and will help in having a transparent domestic spot price discovery mechanism.

Also, the proposed denominations - reflecting underlying physical gold - of Electronic Gold Receipts (EGRs) are 1 kilogram, 100 grams, 50 grams and subject to conditions, those can also be even for 5 and 10 grams. Apart from issuing a consultation paper on the gold exchange, the watchdog has come out with draft norms for vault managers and they will be registered as a Sebi intermediaries.

The proposed gold exchange, encompassing the entire ecosystem of trading and physical delivery of gold, is extremely necessary to create a vibrant gold ecosystem in India which is commensurate with its large share of global gold consumption, according to Sebi. Presenting the Budget for 2021-22, Finance Minister Nirmala Sitharaman had said that Sebi will be the regulator for gold exchange and Warehousing Development and Regulatory Authority (WDRA) will be strengthened to set up the commodity market ecosystem. As per Sebi, the proposed gold exchange would lead to efficient and transparent domestic spot price discovery, assurance in the quality of gold, promotion of India good delivery standard with active retail participation, greater integration with financial markets and augment gold recycling in the country.

"Establishment of regulated gold exchange is a landmark measure and to give due prominence to the historic step, it is believed that the terminology for the instrument should be unique and one that carries a global resonance,"Sebi noted. The regulator has suggested that the instrument to be traded on the bourse can be termed as an 'Electronic Gold Receipt' (EGR) and that the entire transaction mechanism can be divided into three tranches.

In the first tranche, physical gold would be converted to EGR. In this regard, a common interface between the vault managers, depositories, stock exchanges and clearing corporations has been suggested.