India’s first bullion exchange struggles to shine amidst lack of enthusiasm

Trading on India’s first international bullion platform, Indian International Bullion Exchange (IIBX), has been lacklustre on high gold rates, lack of enthusiasm on the part of participants and poor liquidity, traders say. 

IIBX is functioning in the International Financial Services Centre (IFSC) premises in Gujarat International Finance Tec-City (GIFT City), Gandhinagar from this July.

IIBX struggles to shine amidst lack of enthusiasm

Poor marketing

Since its launch, gold trading volumes on the exchange have been meagre, given the high gold consumption and trade taking place in India — the world’s second-biggest gold consumer after China.

IIBX data show that between the launch on July 29 and December 16, the total trade volume has been reported at 532 kg (worth $28.7 million). The average daily volume works out to some 6.57 kg worth $354,335. Data show single-side trades based on actual traded value, while the data took into account trade on both sides prior to October 13.

For a major part of December, there was no trade on the exchange, which was inaugurated by Prime Minister Narendra Modi at the Gift City. “India is a big market for gold and silver. Now, India should also be recognised as a market maker. IIBX is a step in that direction,” the Prime Minister said inaugurating the much-awaited bullion exchange.

“Prior to the launch and even after it, the IIBX wasn’t marketed well to the international community. Till recently, the awareness was poor among the global bullion suppliers on the offerings at IIBX. As a result, there are hardly any qualified suppliers (QS) on the exchange. Liquidity is an issue in the exchange. This is unusual for a gold trading platform - a much-awaited one in a country like India. Forget international, our own local jewellers are hesitant to trade through IIBX,” said one of IIBX members, not willing to be identified.

IIBX top management did not respond to businessline queries despite repeated attempts.

There are 11 trading-cum-clearing members (TCM), and about 75 qualified jewellers onboard including the top names such as Kalyan Jewellers, Bangalore Refinery, Kalamandir Jewellers, Malabar Gold, MMTC-PAMP India, Parker Precious Metals, Riddhi Siddhi Bullions, PN Gadgil Jewellers, and Titan among others.

A Mumbai-based member said, “The exchange may be doing its bit (to improve the volumes). But it looks like the higher prices of gold and lack of incentives for members are hurting its prospects. It has to compete with an established generations-old route between the authorised dealers (ADs) and jewellers or bullion traders who source gold. Why would they unsettle themselves from this established practice and engage in something new which is still not attractive enough?”

Higher transaction costs

A leading Mumbai-based bullion player Suresh Hundia, however, expressed optimism about the platform while cautioning about the higher cost of transactions, which may prove as a deterrent for the participants for full-fledged trading. “Gold prices are high. So, already there are no takers for gold. We don’t see investors also coming in. This is a temporary phenomenon and the exchange may see activities once prices settle down. However, issues such as no delivery centres in Mumbai, high annual fees at IIBX and costs will be deterrents. To be fair, the exchange is relatively new so it may take some more time.”

Traders believe that encouragement for participants in terms of membership discounts, and a reduced customs duty for exchange-routed gold imports are some of the incentives that may drive the volumes at IIBX and keep it buzzing. Haresh Acharya, Director, India Bullion and Jewellers Association Ltd (IBJA), underlined the need for incentives for an initial period of 2-3 years to attract participants and stay in competition with the established ADs.

“The AD lobby is strong. They fear if IIBX gets more attractive, they may lose a sizeable portion of their decades-old business. So they are playing the trust and credibility cards to keep the bullion players and jewellers by their side,” said a jeweller based in Ahmedabad.

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