SEBI Unveils New Rules For Gold Trading

The Securities and Exchange Board of India issued a master circular on Monday consisting of all guidelines for instruments for trading gold on the Gold Exchange, also known as electronic gold receipts, or EGRs.

This includes rules on risk management and procedures for vault managers and depositories, making it easier for stakeholders to find all provisions in one place.

The EGR trading process is divided into three stages. First, EGRs are created when physical gold is deposited into accredited vaults, ensuring it meets the required standards. This process is managed through a common interface accessible to vault managers, depositories, stock exchanges, and clearing corporations. Once created, EGRs are recorded in the owner's demat account and made tradable on stock exchanges. Regular reconciliation of EGR data and physical gold is conducted to maintain accuracy.

Second, EGRs are continuously traded on stock exchanges. Information about EGR creation is periodically shared between depositories, stock exchanges, and clearing corporations. Trades are settled by transferring EGRs and cash between buyers and sellers.

Finally, EGRs can be converted back into physical gold. Owners request conversion through depositories, who coordinate with vault managers for gold delivery. Once the physical gold is withdrawn, the corresponding EGRs are extinguished, and records will be updated accordingly.

Stock exchanges will enforce a price band mechanism to prevent orders beyond the set price limits. Initially, the price limit is 10% of the previous closing price. If the market trends significantly, these limits can be relaxed by 5% increments. Stock exchanges will consider international market movements when adjusting these bands and can make immediate changes during extreme price fluctuations with proper notice.

For transactions in the EGR segment, having a unique client code is mandatory. Members must upload UCC details for all clients before executing trades.

Vault managers must provide a financial security deposit of Rs 10 lakh to one of the depositories before SEBI registration. This FSD can be in cash, bank deposits, or guarantees. The FSD compensates clients for losses caused by the vault manager. If the FSD is used, it must be replenished within seven days.

Vault managers must designate a compliance officer to ensure adherence to relevant regulations. The compliance officer must issue quarterly compliance declarations. Vaults must be secure, with strong rooms, proper connections, and clear demarcations for EGR business.

The complete circular can be found on SEBI's website.