SEBI, seeking comments from stakeholders in the gold market on issues related to EGR trading, settlement, taxation and regulation of vault managers who will issue the EGR, has sought their views by June 18 this year.
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. The gold bars has to be BIS or LBMA accredited.
“…..Despite being only second to China , in consumption of gold, India has remained only a price-taker in global markets,” observed SEBI. “The proposed gold exchange would infuse transparency in gold transactions and over a period of time enable India to emerge as a price setter for the commodity.”
To establish a mechanism for vaulting and trading of the gold on recognised or new exchanges, SEBI constituted two working groups which submitted their reports to it on April 27.
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 , 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.
Another highlight on which the regulator has sought the views of stakeholders is fungibility and interoperability between vault managers. Fungibility means gold deposited under, say, EGR 1 can be delivered against surrender of EGR 2 meeting the same contract specifications.
Interoperability means gold deposited at one location and with one vault manager can be withdrawn from a different location of the same or different vault manager, subject to availability of the physical gold. This will reduce the cost for buyers.
Also, STT will be levied on trading of the EGR and IGST at the time of delivery.