SEBI clears norms for gold exchanges

SEBI clears norms for gold exchanges

Part of: Prelims and GS III – Economy 

Context The Securities and Exchange Board of India (SEBI) approved the framework for a gold exchange as well as for vault managers, facilitating trading in securities tied to the gold.

Key takeaways 

• Gold exchanges will be set up for trading in ‘Electronic Gold Receipts’ (EGRs) like in the case of other securities.
• Existing stock exchanges will be allowed to provide the platform for trading of EGRs.
• The denomination for trading the EGRs and conversion of EGRs into gold would be decided by the exchanges with the approval of SEBI.
• EGR holders, at their discretion, could withdraw the underlying gold from the vaults after surrendering the EGRs. 
• SEBI-accredited vault managers would be responsible for the storage and safekeeping of gold deposits, creation of EGRs, withdrawal of gold, grievance redressal and periodic reconciliation of physical gold with the records of depository. 
• The vault manager would have to have a net worth of at least Rs. 50 crore.
• Significance: The exchanges would enable transparent price discovery, investment liquidity and assurance in the quality of gold.

The Securities and Exchange Board of India (SEBI) 

• It is the regulator of the securities and commodity market in India owned by the Government of India. 
• It was established in 1988 and given statutory status through the SEBI Act, 1992. 
• SEBI is responsible to the needs of three groups:
  • Issuers of securities
  • Investors
  • Market intermediaries
• Functions: 
  • Quasi-legislative – drafts regulations 
  • Quasi-judicial – passes rulings and orders 
  • Quasi-executive – conducts investigation and enforcement action 
• Powers:
  • To approve by−laws of Securities exchanges.
  • To require the Securities exchange to amend their by−laws.
  • Inspect the books of accounts and call for periodical returns from recognised Securities exchanges.
  • Inspect the books of accounts of financial intermediaries.
  • Compel certain companies to list their shares in one or more Securities exchanges.
  • Registration of Brokers and sub-brokers