Context

Sebi has proposed a framework for setting up a gold exchange where the yellow metal will be traded in the form of electronic gold receipts.

About

About SEBI’s proposal

• Market regulator Sebihas proposed framework for setting up a gold exchange.
  • It will help in having a transparent domestic spot price discovery mechanism.
• Denomination: The proposed denominations of Electronic Gold Receipts (EGRs) are 1 kilogram, 100 grams, 50 grams and subject to conditions, those can also be even for 5 and 10 grams
• Gold ecosystem: The proposed gold exchange is extremely necessary to create a vibrant gold ecosystem in india which is commensurate with its large share of global gold consumption.
• Regulation: In the Budget for 2021-22, it was said that Sebi will be the regulator for gold exchange and Warehousing Development and Regulatory Authority (WDRA) will be strengthened to set up the commodity market ecosystem.
• Instrument: The regulator has suggested that the instrument to be traded on the bourse can be termed as an 'Electronic Gold Receipt' (EGR).

SEBI The Securities and Exchange Board of India was established on April 12, 1992. It was set up in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. It aims to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.

• Stages: The entire transaction mechanism can be divided into three tranches.
  • In the first tranche, physical gold would be converted to EGR. In this regard, a common interface between the vault managers, depositories, stock exchanges and clearing corporations has been suggested.
  • The EGR will be listed for trading and the bourse will receive information pertaining to the EGR on a daily basis from the depository concerned in the second tranche. Clearing corporation will settle the trades, as per the consultation paper.
  • In the third tranche, the EGR will be again converted into physical gold and the beneficial owner will have to surrender the EGR to obtain the physical gold.
• Vault management: The regulator has come out with draft regulations for the vault managers, including for registration, net worth criteria and security deposit, infrastructure requirements, standard operating procedure, issuance of EGR and action against vault managers.
• Sebi has suggested requirement of maintenance of records, specified code of conduct and guidelines on segregation of gold exchange and non-gold exchange businesses.

Significance of the proposal

• The proposed gold exchange would lead to
  • efficient and transparent domestic spot price discovery.
  • assurance in the quality of gold
  • promotion of India good delivery standard with active retail participation
  • greater integration with financial markets 
  • augment gold recycling in the country
  • single good delivery standard
  • reduced market fragmentation
  • improved liquidity
  • single reference price

Warehousing Development and Regulatory Authority (WDRA) The mission of Warehousing Development and Regulatory Authority (WDRA) is to regulate and ensure implementation of the provisions of the Warehousing (Development and Regulation) Act, 2007. It acts for the development and regulation of warehouses, Regulations of Negotiability of Warehouse Receipts and promote orderly growth of the warehousing business.