‘Electronic Gold Receipt’ (EGR) as Securities

Subject – Economy

Context – Electronic gold receipts are now ‘securities’, says Finance Ministry

Concept –

The Finance Ministry has specified ‘Electronic Gold Receipt’ (EGR) as ‘securities’ under the Securities Contracts (Regulation) Act 1956, paving way for trading of such instruments on any new gold exchanges that may come up in the country.
This move would also enable trading of EGR in existing exchanges under a separate segment. Like shares, EGRs will be held in demat form and can be converted into physical gold when needed.
With this move, EGR will have trading, clearing and settlement features akin to any other securities.
An EGR is an electronic receipt issued on the basis of deposit of underlying physical gold in accordance with the regulations made by SEBI.
Finance Minister Nirmala Sitharaman had in the 2021-22 budget said that Securities and Exchange Board of India (SEBI) will be the regulator for gold exchanges and that the Warehousing Development and Regulatory Authority would be strengthened to set up the commodity market ecosystem.
SEBI had in September this year given its nod for setting up a gold exchange wherein the yellow metal will be traded in the form of an EGR.
- SEBI had then said that any recognised stock exchange, existing as well as new, can launch trading in EGRs in a separate segment.
- The denomination for trading of EGRs and conversion of an EGR into gold can be decided by the stock exchanges with the approval of SEBI.

Benefits

Host of benefits for the value chain participants as well as for the entire gold market ecosystem such as efficient and transparent price discovery, investment liquidity, assurance in the quality of gold etc.
The EGR holder can continue to hold the EGRs as long as intended since EGRs will have perpetual validity.
An EGR holder at his discretion can also withdraw the underlying gold from the vaults upon surrender of such receipts.
To lower the costs associated with withdrawal of gold from the vaults, SEBI said EGRswill be made “ fungible” and “interoperability between vault managers” will be allowed.

Vault managers

SEBI has already said that it would regulate vault managers, who will have to register with the market regulator, as an intermediary for providing vaulting services meant for gold deposited to create EGRs.
The obligations of the vault manager include accepting deposits, storage and safekeeping of gold, creation as well as withdrawal of EGR, grievance redressal and periodic reconciliation of physical gold with the records of depository.

Note –

India is one of the largest consumers of gold with annual demand of about 900 tonnes.
A SEBI paper put out for public comments had said that EGR trading will attract securities transaction tax and goods and services tax (GST) from the beginning

To know about Securities, please refer December 2021 DPN.