Framework for operationalizing the Gold Exchange in India

SEBI has laid out a framework for operationalizing the gold exchange via Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2022/07, Dated: 10.01.2022, wherein the Gold will be traded in the form of electronic gold receipts (EGRs). SEBI specifies that the supply of the physical gold which is to be converted into EGR, will be the fresh deposit of gold, coming into the vaults, either through imports or through domestic refineries accredited by Stock exchange.

The ‘gold’ which complies either with LBMA Good Delivery Standard or with the India Good Delivery Standard, or any other standard specified by SEBI, will be eligible under this framework. Vault managers will have to ensure that ‘gold’ to be converted into EGR meets the criteria.

The EGRs shall have same trading features as available to “securities” defined under SCRA, 1956. This whole process of trading will be executed in 3 tranches as follows:

First Tranche: Creation of EGR.

• Here the vault manager on receipt of physical gold will record the relevant information in the common interface and create the EGR.
• The vault manager has to ensure that no EGR is created without the presence of corresponding physical gold in its vaults.
• The EGR will reflect in the demat account of the beneficial owner maintained with the depository participant and
• The depository will have to take necessary action to make EGR tradeable on the stock exchange.

Second tranche: Trading of EGR on Stock Exchange/s.

• The depositories will have to share information pertaining to the creation of EGR, with the exchanges and clearing corporations on a periodic basis.
• The clearing corporation will have to settle the trades executed on the stock exchange, via transferring EGR and cash to the buyer and seller of EGR, respectively.

Third Tranche: Conversion of EGR into Physical Gold.

• The beneficial owner of EGR will request the depository for the physical gold, if he intends to obtain the same, which will be forwarded to the vault manager.
• The vault manager after delivering the gold to the beneficial owner will share the required data with the depository for reconciliation.
• The depository, sends this information about the extinguished EGR to the stock exchange and clearing corporation for necessary revision in the records.
• Any dispute relating to quality of physical gold, at the time of withdrawal the same would be dealt with by obtaining quality report from empanelled assayer.

The circular shall come into force with immediate effect

Sahil Goyal, Audit Associate, SW India