The Bombay Stock Exchange (BSE) has received approval from the Securities and Exchange Board of India (Sebi) for its Electronic Gold Receipt (EGR), India’s first spot physical gold exchange product. EGR trading is similar to buying and selling stocks.
Naveen Mathur, director of commodities and currencies at Anand Rathi Shares and Stock Brokers, said, "Electronic Gold Receipts are similar to Dematerialized form of share where they are issued in exchange for physical gold (similar to physical form of equity shares)."
"This Physical Gold which is exchanged is required to be deposited with a vault manager (like a depository participant) and hence receipt obtained (EGRs) can then be traded," Mathur further added.
In India, electronic gold trading happens through gold derivatives or gold exchange-traded funds (ETFs) on stock exchanges. EGR is the first spot physical gold exchange trading product.
In the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced the setting up a SEBI-regulated gold spot exchange. Then, on September 28, 2021, Sebi introduced two new investment instruments, EGR and silver ETFs, in its board meeting.
What Is An EGR?
EGRs are depository gold receipts traded on the stock exchanges. They are held in Demat accounts, just like shares.
BSE said it would soon launch trading in EGRs on its platform.
For EGRs, the physical gold is sourced through imports, accredited domestic refineries, or designated delivery centres.
BSE said the buyer could convert the physical gold into an EGR by depositing the yellow metal at the designated delivery centre. After the gold is sourced, a depository receipt is created for trading on BSE. For example, a buyer can sell the EGR or convert it to physical gold.
Sebi has allowed EGRs to be “interoperable between vault managers” to simplify the gold withdrawal process. So, for example, if you have bought an EGR from BSE and a vault manager holds your EGR, you can either go to him or other empanelled vault managers to exchange the EGR for physical gold.
“The trading will be done in three tranches that include conversion from physical gold to EGRs, trading of EGRs and again conversion of EGR back to physical gold,” the BSE said in a document.
How To Buy EGRs?
Using your Demat account, you can buy an EGR in the same process you buy a stock on BSE. BSE said it plans to launch different variants and denominations, from 1 gram to 1 kg so that investors could buy them according to their budget. For reference, Sovereign Gold Bonds (SGBs) are also available for a minimum value of 1 gram.
“Like shares, EGRs will be held in a Demat form and can be converted into physical gold when needed,” the BSE said.
Regarding settlement and clearing of trades relating to EGR, Mathur of Anand Rathi said that, clearing and settlement of EGRs will entail a multi-level interface of banks, vaults, importers, exporters, retailers, depositories, DPs, and others.
"EGR clearing and settlement will be guaranteed by the clearing corporation, like in the case of equities and F&O. The settlement guarantee fund (SGF) protection will also be available to EGR trading," Mathur further added.
Other Aspects of EGR
On February 14, 2022, Sebi issued a standard operating guideline for Vault Managers and Depositories (VSPs) operating in EGRs.
"The Gold exchange will offer the facility to convert Gold into EGRs, trading in EGRs and reconverting EGRs back to gold. For this purpose, the exchange will work closely with vault service providers (VSP). These VSPs will be instrumental in converting gold to EGRs and back. They will also offer safe custody of physical gold backing such EGRs plus valuation and reconciliation," added Mathur.
The Sebi circular stated that vault managers should raise the invoice and collect gold storage charges from depositories monthly. Depositories, in turn, will collect this charge from the beneficial owners (BO) either at the end of the month, on sale of EGR, or on withdrawal of physical gold by the BO, whichever is earlier.