SEBI revises guidelines for electronic gold receipt segment; key points

Securities and Exchange Board of India (SEBI) has released a comprehensive set of revised guidelines for electronic gold receipts. The circular was addressed to all recognised stock exchanges and clearing corporations having the electronic gold receipt segment, depositories, and registered vault managers.

EGR means an electronic receipt issued based on the deposit of underlying physical gold.

The structure of the EGR transactions has been divided into three tranches. The first is the creation of EGR, followed by trading of EGR on stock exchanges, and lastly the conversion of EGR into physical gold.

The newly announced circular supersedes the June 2023 circular with a more comprehensive and detailed framework and grievance redressal system.

Electronic gold receipts are one of the gold-linked products permitted by SEBI to trade on the stock exchanges. The other products traded on the NSE and the BSE include gold derivatives (futures and options) and gold exchange traded funds (ETFs).

Vault managers are held responsible for the storage and safekeeping of gold deposits, EGR creation and withdrawal, and grievance redressal related to quantity, etc.

The SEBI mandates a minimum financial security deposit of ₹10 lakh to either the NSDL or CDSL before obtaining a certificate of registration from SEBI. The vault manager must maintain this minimum deposit with the depository at all points of time.

Some of the significant VMs include Sequel Logistics, Malca-Amit JK Logistics, and Brinks India having their vault location across India.

SEBI approved the EGR segment framework in September 2021. Subsequently, the Indian government declared ‘electronic gold receipts’ as ‘securities’ under the Securities Contracts (Regulation) Act 1956 in December 2021. The EGR trade, clearance and settlement happens on the exchange platforms itself.

The circular mentions the standard operating guidelines and modalities for the vault managers and depositories.

The initial price limit for the price band of EGR will be set at 10% of the previous closing price. The regulator provides considerable flexibility to the stock exchanges for formulation of suitable rules with mutual consultation for relaxation of dynamic price bands for EGR. International price movements may also be considered.

“The stock exchanges shall ensure that the trading unit is not smaller than the 10th part of the corresponding deposit unit,” the circular specified.

“The ‘gold’ which complies either with LBMA Good Delivery Standard or with the India Good Delivery Standard, or any other standard specified by SEBI, shall be eligible under this framework,” specifies the circular regarding the physical gold on which the EGRs would be underpinned.