Electronic Gold Receipts (EGRs)

Subject – Economy

Context – SEBI clears norms for gold exchanges

Concept –

The Securities and Exchange Board of India (SEBI), approved the framework for a gold exchange as well as for vault managers, facilitating trading in securities tied to the yellow metal.
The markets regulator’s approval for the proposals made in the Union Budget paves the way for gold exchanges to be set up for trading in ‘Electronic Gold Receipts’ (EGRs) like in the case of other securities.
Existing stock exchanges will be allowed to provide the platform for trading of EGRs.

What is EGR?

SEBI proposes issuing an electronic gold receipt in exchange pf physical gold (similar to equity shares), deposited with a vault manager (like a depositary participant) and this receipt can then be traded.
The government wants India’s outsized influence in the physical market for gold to be visible in the financial market for gold as well.
The denomination for trading the EGRs and conversion of EGRs into gold would be decided by the exchanges with the approval of SEBI.
The clearing corporation would settle the trades executed on the exchanges by way of transferring EGRs and funds to the buyer and seller, respectively.
EGR holders, at their discretion, could withdraw the underlying gold from the vaults after surrendering the EGRs.
SEBI-accredited vault managers would be responsible for the storage and safekeeping of gold deposits, creation of EGRs, withdrawal of gold, grievance redressal and periodic reconciliation of physical gold with the records of depository. The vault manager would have to have a net worth of at least ₹50 crore.
Exchanges would enable transparent price discovery, investment liquidity and assurance in the quality of gold.