Sebi, the market regulator proposed an extensive framework to set up a gold exchange, which would allow a yellow metal to trade in the form of electronic gold receipts and help with the discovery of transparent local spot prices.
According to Sebi, the proposal to create a gold ecosystem in India that is equivalent to its vast share in global gold consumption comprises the whole ecosystem of the trade and physical delivery of gold.
Presenting the 2021-22 budget, Finance Minister Nirmala Sitharaman said that Sebi will become the regulator for exchanges of gold and will be strengthened by the Regulatory and Development Authority (WDRA) to establish a commodity market ecosystem.
As in Sebi, the proposed gold exchange would lead to the discovery of efficient and transparent domestic spot prices, gold quality assurance, the promotion of a good Indian supply standard, with active retail involvement, greater integration with financial markets, and increased gold recycling in India.
Sebi has proposed three tranches for transactions in accordance with their recommendations.
The regulator suggested that the tool to be traded on the stock market can be called a 'E-Gold Receipt,' and that it can be divided into three tranches in the entire transaction system.
Tranche 1: Physical gold is converted into EGR in the first tranche. A common interface has been proposed between vault managers, depositors, stock exchanges and clearing companies.
Tranche 2: The information on the EGR will be exchanged from depositors and the clearing companies will settle those transactions.
Tranche 3: This EGR will be turned into physical gold and by tendering their EGR, buyers will obtain physical gold.