SEBI issues product specifications with regard to Electronic Gold Receipts

CIRCULAR No. SEBI/HO/CDMRD/DMP/P/CIR/2022/36, Dated: 28-03-2022

SEBI had earlier issued a framework for operationalizing the Gold Exchange in India and specified the Standard Operating Guidelines for the Vault Managers and Depositories in Electronic Gold Receipts (EGR) segment.

As per the framework, the entire transaction in EGRs segment is divided into three tranches. In tranche 1, physical gold will be converted into EGR; in tranche 2, EGR shall be traded on stock exchanges; and in tranche 3 – EGR can be converted into physical gold. The framework also states that stock exchanges may launch contracts with the different denominations for trading and/or conversion of EGR into gold.

Accordingly, the SEBI stated that the stock exchanges may launch products/contracts subject to conditions that any person desirous of dealing in EGR on the stock exchange shall deposit the gold with the registered Vault Managers, in the ‘deposit unit’, which shall be specified by the stock exchanges. The trading of EGR shall take place on stock exchanges, in the ‘trading unit’, which shall be specified by the stock exchanges.

SEBI further clarified that the stock exchanges shall ensure that trading unit is not smaller than 10th part of the corresponding deposit unit. For example: On deposit of 100gm gold bar, 1 EGR may be created of 100 gm trading unit or 10 EGRs may be created of 10gm each trading unit.

The guidelines provides that the Beneficial owner of EGR intending to obtain physical gold against the EGR/s, shall follow the procedure as stated in SEBI Circular dated January 10, 2022. The ‘withdrawal unit’ of EGR shall be same as ‘deposit unit’, which shall be specified by the stock exchanges.

SEBI further directed the stock exchanges to disseminate adequate information to investors, especially for EGRs with different deposit and trading unit.

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