Sebi notifies vault managers rules; allows bourses to set up gold exchange

Markets regulator Sebi has notified rules for vault managers that allow bourses to set up a gold exchange in the country.

This comes after the board of Sebi cleared a proposal in September for setting up a gold exchange, wherein the yellow metal will be traded in the form of electronic gold receipts and the bourse will help in having a transparent domestic spot price discovery mechanism.

The instruments representing gold will be called electronic gold receipts (EGRs) and will be notified as securities. These EGRs will have trading, clearing and settlement features akin to any other securities.

The gold exchange, encompassing the entire ecosystem of trading of EGR and physical delivery of gold, is expected to create a vibrant gold ecosystem in India.

In a notification dated December 31, the regulator said the vault manager will be registered and regulated as a Sebi intermediary for providing vaulting services meant for gold deposited to create EGRs.

The obligations of the vault manager include accepting deposits, storage and safekeeping of gold, creation as well as withdrawal of EGR, grievance redressal and periodic reconciliation of physical gold with the records of depository.

Any person intending to carry on the business as a vault manager can make an application to Sebi for grant of a certificate of registration.

Spelling out eligibility criteria, Sebi said the applicant shall be a body corporate incorporated in India and shall have the minimum net worth of Rs 50 crore.

Every certificate of registration granted will be valid unless it is suspended or cancelled by Sebi.

"Where a vault manager is carrying on any activity besides those laid down in these regulations, then the activities relating to his business as vault manager shall be separate and segregated from all other activities including earmarking separate space for storage of gold for the trading of EGR and storage of goods for its other business," Sebi said.

The vault managers are required to have systems for recording all transactions in electronic form pertaining to vaulting services.

They need to maintain the documents to ensure that gold is traceable; details of storage, transfer and withdrawal of gold; purity, quantity and weight of deposited gold; and creation and extinguishment of EGRs.

Further, they need to preserve these records and documents for a minimum period of five years. Also, they need to abide by the code of conduct specified by the regulator.

With regard to deposits of gold into vaults, Sebi said any person desirous of creating EGRs will have to place a request for the deposit of the gold with the registered vault manager, who will ensure compliance with the gold standard, weigh the gold bars and check necessary documentation at the time of deposit of gold.

The vault manager or any person authorised on this behalf will ensure that the gold is deposited only through an accredited refinery or a nominated agency.

With regard to the creation of EGR, Sebi said every vault manager will have a common interface with the depository for the creation and extinguishment of EGR.

Upon acceptance of the gold from the depositor, the vault manager will create an EGR in the name of such depositor as beneficial owner by entering details in the common interface.

In respect of withdrawal of gold, the regulator said the beneficial owner seeking to withdraw gold from the vault will have to place a request with the depository.

The depository, after satisfying the payment of charges due to the vault manager, will intimate its approval for withdrawal of gold to the concerned vault manager.

Upon receipt of communication from the depository, the vault manager will hand over the gold and extinguish the EGRs.

The regulator has the right to undertake inspection of the books of accounts, records, documents and deposits of gold of the vault manager in order to inspect into the affairs of such manager in the interest of the securities market among others.

Before ordering an inspection, the regulator will have to at least 10 days' notice to the vault manager.

The new norms to be called the Securities and Exchange Board of India (Sebi) Vault Managers rules has become effective from December 31.

Presenting the Budget for 2021-22, Finance Minister Nirmala Sitharaman had said that Sebi will be the regulator for gold exchange and Warehousing Development and Regulatory Authority (WDRA) will be strengthened to set up the commodity market ecosystem.