The Bombay Stock Exchange (BSE) is getting ready to introduce electronic gold receipts (EGRs) on its platform. The necessary technology has been prepared. On Sunday, Sameer Patil, the company’s chief business officer, said that this will aid in the creation of a standard gold price structure across India. Gold monetization initiatives like the Gold Monetization Scheme (GMS), Gold Bonds, and Gold Deposits will benefit from EGR trading.
While the technology is ready, he noted that BSE must obtain the necessary internal approvals and apply to the Securities and Exchange Board of India (Sebi) for authorization to offer the new type of security on its platform. Notably, the Sebi board approved a plan for a gold exchange last Tuesday, in which the yellow metal will be traded in the form of EGRs. Its goal is to provide Indian investors with a transparent domestic spot price discovery method.
In contrast to numerous other nations that have spot exchanges for actual gold trade, India currently only allows trading in gold derivatives and gold ETFs. Electronic Gold Receipts (EGRs) will symbolize gold, and they will be registered as securities. According to PTI, EGRs will offer trading, clearing, and settlement features similar to other securities now accessible in India.
“Because gold is such a vital commodity for Indian consumers, BSE, which is known for its technological expertise, has been a leading proponent of building a transparent and efficient spot market for gold,” Patil added.
EGRs will be stored in Demat form, similar to shares, and can be converted into actual gold when needed, according to Patil. EGRs (backed by physical gold) will be traded and settled on stock markets to facilitate physical gold trading. Patil’s entire transaction will be done in three stages: conversion from physical gold to EGRs, EGR trading, and EGR conversion back to physical gold.
For starters, BSE may consider issuing EGR in 1 kilogram and 100 gm denominations, which can be redeemed to physical gold. EGR in lesser values of 50 gm, 10 gm, and 5 gm would be introduced in stages to attract retail investors.
Fresh gold deposits, either through imports or through stock exchange certified domestic refineries, will be the source of supply for the physical gold to be transformed into EGR. A consumer can also deposit actual gold at an authorized delivery center and convert it to EGR. Exchanges shall appoint Vault Service Providers (VSPs) following Sebi requirements.
The approach is expected to decrease existing bullion market inefficiencies and serve as a bridge for connecting spot gold trade with derivatives markets and creating a transparent bullion trading platform.