Securities and Exchange Board of India (SEBI) has unveiled a framework for creating operational gold exchanges that will facilitate trading of yellow metal in the form of electronic gold notes (EGRs).
The exchanges interested in EGRs can apply to SEBI for approval to trade in the new segment, the regulator said in a circular.
The exchanges can launch contracts with different denominations for trading or conversion of EGR into gold. Under the new framework, the entire transaction is split into three tranches: creation of EGR, trading of EGR on the exchange and conversion of EGR into physical gold.
The custodians will develop a common interface that will be made accessible to all entities – vault operators, custodians, stock exchanges and clearing houses.
The new framework will take effect immediately, SEBI said.
This comes after the government, by means of a notice on December 24, declared “electronic gold receipts” as “securities” under the Securities Contracts (Regulation) Act 1956.
Separately, through a notice on December 31, the regulator released rules for vault operators paving the way for operationalizing gold exchanges.
According to the circular, the supply of the physical gold to be converted into EGR will be the fresh deposit of gold entering the vaults, either from imports or from exchange-accredited domestic refiners.
The existing gold in the vaults that meets the criteria and has never been out of the vault infrastructure is eligible for conversion to EGR.
Vault managers will need to ensure that converting ‘gold’ into EGR meets the criteria.
Gold that meets the LBMA Good Delivery Standard or the India Good Delivery Standard, or any other standard specified by SEBI, is eligible for this framework.
To lower the costs associated with withdrawing gold from vaults, EGRs have been made “functionable” and allowed “interoperability between vault operators.”
SEBI further said that clearing companies will engage testing agencies to verify the purity of gold if required by the beneficial owner of the EGR at the time the gold is removed from the vaults.
However, the costs for testing and transportation will be borne by the ultimate beneficiary. Such testing charges will be disclosed to the general public in advance.
SEBI said investors should be encouraged to use their own trusted means of transportation for moving gold from vaults to their preferred location. To facilitate the same, vault operators may, at their discretion, post a list of logistics service providers on their website with relevant contact details.
However, SEBI or the vault operator is not responsible for any dispute arising from the transportation of gold, regardless of the choice of the logistics provider.