Govt mulls independent body for price discovery on spot exchanges

Lobby groups in the bullion market that dominate price discovery may suffer a body-blow soon. The government is planning to set up an independent agency for price discovery on spot exchanges, which would be a key part of the trading ecosystem, sources told BusinessLine .

The agency will be responsible for pooling the domestic prices of all the commodities that are traded on the spot exchanges. It will have a set of its own criteria for spot prices. Currently, lobby groups in the bullion market have tied-up with exchanges and hoped to lead price discovery when spot trading platforms are allowed.

But an independent agency for price discovery could keep these lobbies in check, regulatory experts say. The final norms and framework for spot exchanges are expected this month, according to sources.

Gold prices in India are determined largely through an informal process and there are a few “king-makers” who rule the roost. International prices do have a bearing, but spot gold rates in India are not exactly the same. The Indian Bullion Jewellers Association, or IBJA, plays a key role in determining day-to-day gold rates as of now.

IBJA members include the biggest gold dealers in the country, who have a collective hand in establishing prices. These members account for almost all the gold dealings in India. Dealers generally arrive at their ‘buy’ and ‘sell’ rates by taking the international cost of gold and multiplying/adjusting it to the exchange value of the rupee and adding import duties and taxes such as VAT. Dealers add their margins, too.

It is for the first time after the NSEL fiasco that the government is thinking of allowing operations of spot exchanges in the country for an effective price discovery and limit trades in over-the-counter market. NSEL was said to be operating in a regulatory vacuum under the patronage of the Ministry of Consumers Affair, which later withdrew its permission for the exchange.

Initially, the government is likely to allow the setting up of spot exchanges for bullion with an energy platform to soon follow. All the three exchanges — the MCX, the National Stock Exchange and the BSE — are gearing to launch spot exchanges for bullion.

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