Proposal of Gold Exchange by SEBI

News: The Securities and Exchange Board of India (SEBI) has proposed a framework for setting up a spot gold exchange. The spot exchange is where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery.

Why do we need such Gold Exchange?

  • To create a vibrant gold ecosystem in India which is commensurate with its large share of global gold consumption.
  • India (after China) is the second largest consumer of gold globally, with annual gold demand of approximately 800-900 tonnes, and holds an important position in the global markets.
  • The objective behind setting up gold exchanges is for India to become a price setter rather than a price taker and to establish an India good delivery standard, akin to London Bullion Market Association (LBMA) accredited gold bars.
  • Setting up a new stock spot gold exchange has advantages such as single good delivery standard, reduced market fragmentation, improved liquidity, and single reference price.

Proposed structure of Gold Exchange:

  • In the first tranche, an entity desirous of delivering gold, locally manufactured or imported, on the exchange platform would have to approach a SEBI regulated vault manager and deposit physical gold meeting quality and quantity parameters with it.
  • Against this, the vault manager will issue an EGR (Electronic Gold Receipt), which will be tradeable on the exchanges, in the second tranche. A beneficial owner will surrender the EGR to a vault manager and take delivery of the gold in the third tranche.
  • A common interface will be developed between vault managers, depositories, clearing corporations and stock exchanges to enable seamless execution of the three tranches.
  • The proposed denominations – reflecting underlying physical gold – of EGRs are 1 kilogram, 100 gram, 50 gram and subject to conditions, those can also be even for 5 and 10 gram.
  • STT (Security Transaction Tax) will be levied on trading of the EGR and IGST (Integrated Goods and Services Tax) at the time of delivery.