Market regulator proposes framework for setting up a spot gold exchange

The Securities and Exchange Board of India (Sebi) proposed a framework for setting up a spot gold exchange, in a discussion paper released on Monday. The proposal was first announced by the finance minister in the Union Budget this year.

Sebi has sought comments on allowing trading in quantities as low as 5 grammes, permitting multiple spot exchanges, incentivising trading on the exchange platform, and having a single gold price across country with transportation cost adjusted as premium or discounted from traded price.

An industry official, who spoke on the condition of anonymity, said: “Physical market will coexist along with the spot exchange.” Earlier discussions had suggested mandating all imported gold be traded first on the spot exchange platform, but Sebi was silent on the issue in the discussion paper.

MCX, BSE and NSE are together setting up a spot exchange in the GIFT City.

In the paper, Sebi has sought comments on whether the proposed gold spot exchange should be set up by the existing stock exchange either through a separate segment or as a new asset class in existing segment.

The paper said, “Setting up a new stock spot gold exchange has advantages such as single good delivery standard, reduced market fragmentation, improved liquidity, single reference price etc. However, it will be time consuming, will require fresh investments in setting up new stock exchange,” along with duplicating other processes and infrastructure and increase compliance cost.

To simplify trading, Sebi has proposed to convert physical gold into electronic gold receipt (EGR), which will be issued by regulated vault companies. At the time of delivery that receipt will again be converted into physical gold, said the paper. Sebi has also proposed regulating vault companies.

Sebi has also sought comments on the minimum quantity of gold tradable.

Post the Budget announcement, Sebi constituted two working groups to come up with the framework. The last date for submitting comments is June 18.

Watch Video