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Days after regulator SEBI cleared the framework for setting up gold exchanges, leading stock exchange BSE has announced that it is ready with technology to launch Electronic Gold Receipts (EGRs) on its platform.
EGR is basically the instrument that represents gold and it will be considered as securities.
BSE’s chief business officer Sameer Patil said that the exchange had been working on preparing the technology for this to happen for a long time, and had been waiting for an in-principle nod for the same to take it forward, according to media reports.
At present, in India gold is traded through spot exchanges, gold derivatives and gold exchange-traded funds (ETFs).
BSE had made several presentations to both the market regulator SEBI and the government, detailing how EGRs will work and how various players such as banks, vaults, wholesalers, retailers, importers, exporters etc will participate in it.
Potential of EGRs
According to Patil, EGRs will be held in Demat form and that could be converted into physical gold as and when required.
Anyone will be able to convert physical gold to EGRs by depositing physical gold at the designated delivery centre or Vault Service Providers (VSPs), which will be empanelled based on the guidelines issued by the market regulator.
In the same way, people will be able to redeem EGRs back to physical gold. An interface will be developed to connect the managers of the gold vaults, depositories (holding EGRs in Demat) and stock exchanges and clearing corporations that clear the trade.
How EGRs will work
EGRs will be traded and settled in stock exchanges to enable trading in physical gold and the entire trading will be done in three tranches — conversion from physical gold to EGRs, trading of EGRs and again conversion of EGR back to physical gold.
BSE could begin by launching EGR of denominations of 1 kg and 100 gms, allowing the conversion of the same into gold. In the coming days, in a phased manner, EGRs of smaller denominations such as 50 gm, 10 gm and 5 gm will also be launched for retailers.
Finance minister Nirmala Sitharaman, in her union budget 2021-22 speech, had first announced the setting of gold spot exchanges and said that SEBI would be made the designated regulator for these exchanges. Trade-in EGRs is likely to contribute towards the ongoing gold monetization plans such as Gold Monetization Scheme (GMS), Gold Bonds, and Gold Deposits.