Bombay Stock Exchange Ready with Technology to Launch Gold Electronic Receipts, IT News, ET CIO
This comes after Sebi’s board of directors on Tuesday approved a gold swap proposal, in which the yellow metal will trade in the form of EGR and help have a transparent price discovery mechanism at the national cash.
Currently, India only allows trading in gold derivatives and gold ETFs, unlike several other countries that have spot exchanges for physical gold trading.
Instruments representing gold will be called Electronic Gold Receipts (EGR) and will be notified as securities. EGRs will have trading, clearing and settlement functions similar to other securities currently available in India.
“BSE, well known for its technological prowess, has been the main proponent of creating a transparent and efficient spot market for gold, as it is a very important commodity for Indian consumers.” Patil told PTI.
He further said that the exchange has been preparing the technology for a very long time in this market and is awaiting approval in principle so that it can go further.
The exchange has made several presentations to government and regulators on how the process works and how participants of various types including banks, safes, wholesalers, retailers, importers, exporters, etc. will participate in this ecosystem.
According to Patil, like the shares, these EGRs will be kept as demat and can be converted to physical gold if necessary.
To enable physical gold trading, EGRs (backed by physical gold) will be traded and settled on an exchange.
Patil said the entire trading will be done in three tranches that include converting physical gold to EGR, trading EGR and again converting EGR to physical gold.
For starters, BSE can consider throwing 1kg and 100g EGRs and the same can be converted to physical gold. To attract retail investors, EGR with smaller denominations of 50g, 10g and 5g will also be phased in.
The source of supply of the physical gold to be converted into EGR will be the deposit of fresh gold, entering the vaults, either through imports or through national refineries accredited by the exchanges.
A customer can also convert physical gold to EGR by depositing physical gold at the designated delivery center. The exchanges will bring together VSPs based on guidelines prescribed by Sebi.
Likewise, customers can convert EGR to physical gold and the process is complete. An interface will be developed between the vault managers (physical gold), the depositaries (who hold the EGR on deposit) and the exchanges and clearing companies which clear the transaction.
This move is expected to reduce existing market inefficiencies in bullion trading and could serve as a gateway to integrate spot gold trading with derivatives markets and create a transparent platform for bullion trading.
In addition, a single point of trading for both spot and derivative products would provide scale, liquidity and better pricing to all market participants by significantly reducing costs and cycle time.
Additionally, EGR trading will contribute to existing gold monetization programs such as the Gold Monetization Program (GMS), Gold Bonds and Gold Deposits.
In the Union budget 2021-2022, Finance Minister Nirmala Sitharaman announced the establishment of a spot gold exchange and Sebi will be the appointed regulator for the proposed gold exchanges.