Sebi proposes linking gold, silver ETFs to spot prices on domestic exchange

New Sebi proposal aims to bring consistency across AMCs by valuing gold and silver ETFs using domestic spot prices instead of LBMA-derived pricing with adjustments

The Securities and Exchange Board of India (Sebi) has proposed a new methodology for valuing physical gold and silver held by exchange traded funds (ETFs), aiming to bring uniformity across schemes.

 

The proposal suggests valuing gold and silver based on the spot prices determined by domestic exchanges, instead of the current practice of deriving valuations from London Bullion Market Association (LBMA) prices.

 

Currently, while the valuation process begins with LBMA pricing, it is ultimately adjusted to align with domestic spot prices.

 

According to Sebi, the variation in valuation arises due to the use of different domestic benchmarks and inconsistent frequency of pricing adjustments. 

 

 

“In the absence of any regulatory direction, AMCs use their discretion to apply premium/discount, resulting in differences in the valuation of gold/silver. For example, different asset management companies (AMCs) apply premium/discount at different frequencies—on a daily basis, alternate days, monthly, etc. This leads to differential valuation of gold/silver,” Sebi said in a consultation paper issued on Wednesday. The premium or discount reflects the difference between LBMA and domestic prices.

 

This variation in the valuation process, Sebi noted, contributes to performance differences across ETFs offered by different AMCs.

 

Sebi said that switching to domestic spot prices, as published by commodity exchanges, would eliminate the need for subjective adjustments. “This change may aid in doing away with subjective adjustment of the premium/discount, as these spot prices are polled from domestic participants and are reflective of the domestic demand and supply,” the regulator added.

 

Sebi also plans to enhance transparency in the polling-based price discovery mechanism used by exchanges. The regulator has proposed making it mandatory for exchanges to publish the polling mechanism, including policies for the fair conduct of polling.