SEBI Approves Setting Up Gold Exchange

In its latest board meeting held on 28th September, the SEBI Chairman Ajay Tyagi announced a slew of changes to capital market regulations to expand the offering for retail investors and better protect their interest. One such move is the proposed framework for a gold exchange. Here are the highlights of the gold exchange announcement.

1) The proposed gold exchange is intended to create a robust and transparent market to trade in spot gold. This will also offer a scientific process for price discovery of gold on a daily basis. It will trade in standardized spot gold.

2) The Gold Exchange will be set up under the aegis of the recognized stock exchanges and the platform will offer trading, clearing and settlement of trades in gold. The trading will be regulated by SEBI and will be covered by Settlement Guarantee Fund.

3) Gold will be traded on the gold exchange through Electronic Gold Receipts (EGRs), the equivalent of warehouse receipts in commodities. Gold being a perpetual asset, EGRs will have perpetual validity. EGRs will be classified as securities under SCRA definition.

4) SEBI will authorize Vault Managers subject to a minimum net worth of Rs.50 crore. They will provide vaulting services including taking gold deposits, safekeeping gold, issue of EGRs, verification of physical gold, reconciliation with EGRs etc. 

5) The EGRs will be fungible both ways. Gold can be converted into EGRs and EGRs can be surrendered for gold. EGRs will be traded like a security on the stock exchange with real time quotes. EGRs and physical gold of two vaulting managers will also be fungible.

6) Electronic Gold Receipts or EGRs will be the closest to physical trading in gold and will add a lot of value to intraday traders, short term traders, arbitrageurs, hedgers like jewellers looking for price protection, gold ETFs etc.

7) The spot gold exchange was in the works for a long time, but post the NSEL spot exchange crisis, the regulator had been doubly wary of the systems required in regulating a spot exchange. That now appears to be under control.

In a related development, the SEBI has also authorized the launch of Silver ETFs, on the lines of gold ETF, as an additional asset class.