Gold & Silver

India’s gold revamp pushes on as spot trading inches closer

Bloomberg June 3 | Updated on June 03, 2021

SEBI has proposed a new framework laying out the role of spot exchanges, assayers, vaults and traders

India is moving closer toward setting up spot contracts for gold, finalising rules for trading and providing the world’s second-biggest consumer a firmer grasp over setting the price of bullion.

The gifting of gold at weddings and festivals, and its purchase as a store of value are deeply held traditions in India, and the country has been trying to overhaul its fragmented gems and jewelry industry to make supply more transparent, help enforce purity standards and bolster confidence among consumers.

The Securities and Exchange Board of India (SEBI), has proposed a new framework laying out the role of spot exchanges, assayers, vaults and traders and the policy is open for public feedback till June 18.

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While there is no official deadline for the final rules, the industry’s expectations are that they will be firmed up by September, according to Shekhar Bhandari, the Mumbai-based president and business head of global transaction banking at Kotak Mahindra Bank Ltd. The Indian gold industry is also banking on spot trading to provide it a greater say in pricing, much like biggest consumer China.

“Trading in spot gold exchange is good structural reform – much required in gold industry,” said Bhandari. “Once you’re able to bring more gold that is sitting at home into electronic gold receipts, it will be better tradeable and improve money circulation in the economy.”

Parallel Trade

Under the new rules, a common interface will be developed between vault managers, depositories, stock exchanges and clearing corporations. Physical gold from the fresh deposits coming into the vaults, either through imports or domestic refineries, will be converted into electronic gold receipts, which will then be traded on the spot market.

Spot trading in bullion will make the metal cheaper for consumers, ensure quality and prevent counter-party risk in settlement of contracts, according to PR Somasundaram, Managing Director for India at the World Gold Council.

“So far the policy framework looks good and if it is supported by more pragmatic goods and services tax implementation then we will have a very robust trading system,” said Somasundaram, who was also part of the consulting group for the policy. “What is required now are the final regulations to be in place, a foolproof software backbone to generate the EGR, and getting banks to be comfortable in this space.”

Still, clarity is required on how imports will be routed through the new exchange, London-based consultancy Metals Focus Ltd. said in a report. The consultancy also suggested tax exemptions or credit to encourage participation by bullion dealers, jewelers and manufacturers.

“The parallel trade in gold remains an important issue for organised players in India, and so the exchange could potentially be a useful medium to promote organized trade if all imports must pass through it,” Metals Focus said.“This will also help increase the traceability of gold and make the entire system more transparent.”

Published on June 03, 2021

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