New Delhi: Leading exchange BSE is ready with its technology to introduce electronic gold receipts (AGRs) on its platform, which will help create a unified pricing structure for the yellow metal across the country, its chief business officer Sameer Patil said on Sunday . The exchange will obtain the necessary internal approvals and apply to the market supervisory authority Sebi to introduce the new security class on its platform, he added.
This comes after Sebi’s board of directors approved a proposal for a gold exchange on Tuesday, in which the yellow metal will be traded in the form of EGRs and will help create a transparent mechanism for determining the domestic spot price.
Currently, India only allows gold derivatives and gold ETFs to be traded, unlike several other countries that have spot exchanges for physically trading gold.
The instruments that represent gold are known as Electronic Gold Receipts (AGRs) and are reported as securities.
EGRs will have trading, clearing and settlement functions similar to other securities currently available in India.
“BSE, 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 went on to say that the exchange has been preparing the technology in this market for a long time and is waiting for approval in principle for the same in order to develop it further.
The exchange had given the government and regulators several presentations on how the process will work. How the participants of various types including banks, vaults, wholesalers, retailers, importers, exporters, etc. participate in this ecosystem.
According to Patil, like stocks, these EGRs are held in demat form and can be converted into physical gold if necessary.
To enable trading in physical gold, EGRs (backed by physical gold) are traded and settled on exchanges.
Patil said all trading will be done in three tranches, which will include converting physical gold to EGRs, trading EGRs, and again converting EGR back to physical gold.
Initially, BSE could plan to introduce EGR in 1kg and 100g denominations that can be converted into physical gold. In order to attract private investors, EGR with smaller denominations of 50 g, 10 g and 5 g are also being introduced gradually.
The source of supply for the physical gold to be converted into AGR is the fresh gold that enters the vaults either through imports or through domestic refineries approved by exchanges.
A customer can also convert physical gold to EGR by depositing physical gold at the specified delivery center. Exchanges will incorporate Vault Service Providers (VSPs) based on the guidelines prescribed by Sebi.
Similarly, customers can exchange AGRs back for physical gold and the process is complete. An interface will be developed between the vault managers (for physical gold), the custody accounts (who hold EGRs in demat) and the exchanges and clearing houses that handle the trade.
It is expected that the move will reduce the existing market inefficiencies in precious metals trading and serve as a bridge in the integration of spot gold trading with the derivatives markets and create a transparent platform for precious metals trading.
In addition, single point trading for both spot and derivatives would provide economies of scale, liquidity and better prices for all market participants by significantly reducing costs and cycle time.
In addition, trading EGRs will add to existing gold monetization programs such as the Gold Monetization Scheme (GMS), Gold Bonds and Gold Deposits.
In the Union’s 2021-22 budget, Finance Minister Nirmala Sitharaman announced the establishment of a gold spot exchange and Sebi will be the designated regulator for the proposed gold exchanges.
