Securities and Exchange Board of India (SEBI) has taken the next big step towards operationalising spot gold exchanges in the country. It has now specified the fee that a stockbroker would be required to pay the markets regulator for sale and purchase transactions of electronic gold receipts (EGRs) in the bourses.

SEBI has now introduced a fee of ₹0.00010 per cent of turnover (₹10 for every ₹1 crore transacted) for EGR. This fee will be applicable for purchase and sale transactions in EGR at the proposed gold exchanges. SEBI has also now stipulated that every clearing member and self-clearing member dealing in EGR should have a deposit of ₹1 crore. 

Physical gold

Put simply, an EGR is an electronic receipt issued on the basis of a deposit of underlying physical gold in accordance with the regulations made by SEBI. Finance Minister Nirmala Sitharaman in the 2021-22 budget said that SEBI will be the regulator for gold exchanges.

It maybe recalled that SEBI in September last year gave its nod for setting up a gold exchange, wherein the yellow metal will be traded in the form of an EGR. SEBI had said that any recognised stock exchange, existing as well as new, can launch trading in EGRs in a separate segment.

The denomination for trading of the EGRs and conversion of an EGR into gold can be decided by the stock exchanges with the approval of SEBI.

Commenting on the latest move, Narinder Wadhwa, President, Commodities Participants Association of India (CPAI) told BusinessLine this fee is in nature of transaction charge and will help operationalise the spot gold exchanges. 

Derivatives and ETFs

So far, the only instrument through which members of exchanges could have exposure to gold is through derivatives and ETFs. “EGRs are a new area and a new instrument that we always wanted. So that we have an option to take delivery also. Indians have a great love for gold. This EGR will enable investors to have physical gold. This is a welcome step and I hope there will be good traction for this in times to come,” Wadhwa said. 

He also said that CPAI will soon approach SEBI and the Finance Ministry to seek clarification as to whether the specified fee would apply for both the sell-side and buy sides of every EGR transaction put through the gold spot exchange.

Indications are that the first spot gold exchange will take off in the next few months and it could most likely be the Bombay Stock Exchange, which may roll out a separate segment for this purpose.

The Finance Ministry in December last year notifiedEGRs, the instrument representing gold, as “securities”, paving the way for the launch of gold exchanges. 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 January this year, SEBI had notified the regulations for vault managers, setting out the norms and obligations for providing vaulting services for the gold traded through EGR at the proposed gold exchanges.

Meanwhile, the market regulator has also now revised guidelines and introduced net worth norms for brokers, clearing members, and self-clearing members dealing in securities. This is the minimum net worth requirement and the existing exchanges can stipulate higher levels than what SEBI has prescribed, sources said. The net worth requirement has gone up, but deposit levels remain same, they added. 

Experts also clarified that SEBI move to levy 0.00010 per cent should not be seen as a securities transaction tax (STT), which will require an amendment in the Finance Act and has to come through the Union Budget. This is a fee and not a tax and proceeds will go to SEBI and not the exchequer, they added. 

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