BSE All Set to Launch Trading in Electronic Gold Receipts (EGR)

A little over a week after SEBI approved the setting up of the gold exchange and trading in electronic gold receipts (EGRs), the BSE appears to be all set to go. According to a statement given by the BSE, the exchange was technologically ready to launch trading of Electronic Gold Receipts on its existing trading platforms. SEBI approval is still awaited.

In its last board meeting, SEBI approved setting up of gold exchanges that would permit trading in EGRs in lieu of physical gold. The EGRs will be similar to the warehouse receipts used to trade in commodities. The idea of EGR trading on a gold exchange was to ensure a uniform trading price for gold at a national level via a transparent market mechanism.

Check - SEBI Approves Setting Up Gold Exchange

Currently, the EGRs will be the third gold-linked product to trade on the exchanges. Gold derivatives (futures and options) as well as gold exchange traded funds (ETFs) are already permitted to be traded on the exchanges. Gold EGRs have already been classified as securities under the SCRA. Hence, the trading, clearing and settlement of EGRs will happen on the exchange platform itself.

EGRs can be held in the regular demat account. Clearing and settlement of EGRs will entail a multi-level interface of banks, vaults, importers, exporters, retailers, depositories, DPs etc. EGR clearing and settlement will also 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.

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.

To begin with, BSE is likely to launch EGRs in denominations of 1KG and 100 grams denomination for convenience. However, subsequently there would be addition of smaller denominations like 5 grams, 10 grams and 50 grams to attract retail investor interest. EGRs are fungible both ways and also fungible among the VSPs.

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