Sebi board allows non-bank custodians to manage gold products

The Securities and Exchange Board of India's (Sebi's) board on Monday decided to allow non-banking custodians to manage gold-exchange traded funds (ETFs) and other gold-related products. Banking custodians can continue to provide these services, it stated after a meeting.

The board decided to bring amendments to the SEBI (Mutual Funds) Regulations, 1996, in this regard.

Gold ETFs were permitted 13 years ago by a special notification, allowing the market watchdog Sebi to regulate them despite the underlying asset being a commodity.

After the meeting, Sebi stated: "In order to reduce concentration of custodial services for gold or gold-related instruments, the board approved the proposal to amend the SEBI (Mutual Funds) Regulations, 1996, providing for non-banking custodians, in addition to bank-custodian, to offer custodian services for gold or gold-related instruments of gold ETFs." 

This is a significant development because some leading bloom refineries like MMTC-PAMPS and even GIFT city IFSC had shown interest in doing these activities. The move is aimed at expanding the market for gold investment.

Surendra Mehta, National Secretary, Indian Bullion and Jewellers Association said, "These changes will enable IFSC-GIFT City to become custodian for gold and gold realted instrument of ETF. This would bring in lot of volume to the proposed international bullion exchange to be set up in GIFT City. What this actually means is this ETF can buy gold from gold refineries to be set up in GIFT City, as announced in the Budget. Further the same can also be traded on international bullion exchange."  He also felt that eventually foreign companies will be motivated to set up refineries in GIFT City as the tax rate is 15% only.

All custodians will probably use services of Brink and Sequel for vault facilities.