SEBI proposes Gold Exchange in India

The Securities and Exchange Board of India (SEBI) on Monday proposed an extensive framework for setting up a gold exchange in India, where the gold will be traded in the form of Electronic Gold Receipts (EGRs) and can help in having a transparent domestic spot price mechanism.

The stated gold exchange, encompassing the whole ecosystem of trading and physical delivery of gold, is notably important to build a vibrant gold ecosystem in India which is commensurate with its large share of global gold consumption, according to SEBI.

In the financial year 2022 budget speech, Finance Minister Nirmala Sitharaman had announced the plan to establish a gold spot exchange in India. The government has announced, SEBI will be the regulator for gold exchange and the Warehousing Development and Regulatory Authorities (WDRA) will be strengthened to set up the commodity market ecosystem.

Electronic Gold Receipt

To simplify trading, SEBI has proposed to convert physical gold into Electronic Gold Receipt (EGR), which will be issued by regulated vault companies. At the time of delivery that receipt will again be converted into physical gold, said the SEBI.

The proposed EGR denominations for physical gold are — 1 kilogram, 100 gram, 50 gram and subject to conditions. To attract more players to this market, EGRs with smaller denominations like 10 grams and 5 grams may also be introduced for trading objectives, said in a consultation paper on the gold exchange.

How transaction on gold exchange will be executed ?

SEBI has created two groups for drafting regulations for gold spot exchange. As per their suggestions, SEBI has proposed three tranches for executing transactions.

Tranche 1- Physical gold would be converted to ‘Electronic Gold Receipt’ (EGR). For this, a common interface between the stock exchanges, vault managers, depositories and clearing corporations has been suggested.

Tranche 2- The gold exchange will get information about EGR from depositories and clearing corporations will settle these trades.

Tranche 3- EGR will be converted into physical gold and buyers will get physical gold by tendering their EGR.

India’s position in Global Gold Market

India maintains an important position in the global gold market with an annual gold demand of roughly 900 tonnes. After China, India is the biggest consumer of gold still India remains a price taker. At present, India does not play any important role in influencing the global price setting for the commodity.

Purpose of Gold Exchange

In India, there is a need for transparency in gold transactions. The proposed gold exchange would bring transparency in gold transactions and over a period of time it will empower India to develop as a global price setter for the commodity.