SEBI Notifies Vault Manager Rules for Gold Exchanges

Nearly 4 months after SEBI cleared the proposal for setting up of gold exchanges, the regulator has notified rules for vault managers. While the gold exchanges will provide a platform for trading in non-physical gold, it is the vault managers who will pray the critical role of interfacing between physical gold and electronic gold.

The Union Budget 2021 had announced the trading of electronic gold receipts (EGR) via gold exchanges located as part of the existing stock exchanges. The EGRs will be treated as securities under the Securities Contracts and Regulation Act (SCRA), so brokers will be permitted to deal in these EGRs. Now comes the issue of creation of EGRs.

That is where the vault managers come in. These vault managers will be registered as a SEBI intermediary and will also be regulated by SEBI. They will providing vaulting services for the gold deposited for the purpose of creation of electronic gold receipts (EGRs). The vaulting manager will be the key intermediary in terms of the gold trading.

The vault manager will accept deposits in gold, be responsible for storage and safekeeping of gold, creation of tradeable EGRs against physical gold deposited as well as extinguishing EGRs where the physical gold has been withdrawn or redeemed. In addition, vaulting managers will also do the all-important reconciliation between physical gold and EGRs.

SEBI has stipulated minimum net worth of Rs.50 crore for being eligible as a corporate vaulting manager. These certificates of registration, once granted, will be valid till the time these certificates are either suspended or withdrawn. These vaulting managers will have to maintain the complete audit trail and make details available to SEBI for inspection.

Every vault manager will have a common interface with the depository (NSDL or CDSL) for creation and uploading of EGRs. Once the EGRs are created, they will be traded on the gold exchange in regular market and the trading and clearance of these EGR trades will happen exactly as the clearing and settlement of equities and futures & options trades happen.

The new norms have been issued effective from 31st December 2021 and will be called the Securities and Exchange Board of India Vault Manager Rules. It is expected that robust trading in these backed by physical gold will provide an active and regulated market for trading in non-physical gold, with the necessary trading and clearing checks and balances.

The regulator also hopes that this product will draw people away from dealing in the digital gold which is not currently regulated by SEBI, and hence carries default risk.