Framework for Gold Exchange
On Tuesday, September 28, the Board of the Securities and Exchange Board of India (SEBI) approved the framework for gold exchange where the gold can be traded in Electronic Gold Receipts (EGR). It will be having trading, clearing, and settlement feature just like other securities traded on exchanges. It will also help in having a transparent domestic spot price discovery mechanism. This approval came after the 2021-22 budget speech of FM Nirmala Sitharaman, where she said that SEBI will be the regulator for the gold exchange. She also mentioned that Warehousing Development and Regulatory Authority (WDRA) will be strengthened to set up the commodity market ecosystem. According to SEBI, the gold exchange will cover the whole ecosystem of trading EGR and the physical delivery of gold, which will create a vibrant gold ecosystem in India.
"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
How will Gold Exchange work?
There will be corporate entities called vault managers. They must be having a net worth of at least 50 crores and SEBI registered. They will be obliged to accept gold deposits, to ensure safe storage of gold, and to create EGRs. This means that EGRs will be having the underlying quantity of gold. Any Stock Exchange can launch EGR trading and decide the denomination of EGR trading - 1 gm, 2 gm, etc. The Clearing Corporation of India (CCI) will settle the trade by transferring EGRs and funds to the buyer and seller, respectively. The EGR will have lifetime validity. If the investors want to convert EGR into gold, they can surrender EGR to the vault manager.
Along with this, the SEBI also gave approval for Silver ETFs, just like Gold ETFs. The regulator also approved Social Stock Exchange. This will be helpful for social entrepreneurs to raise funds.