Sebi notifies vault managers rules; allows bourses to set up gold exchange in India

New Delhi: Markets regulator Sebi has notified rules for vault managers that allow bourses to set up a gold exchange in the country.

This comes after the board of Sebi cleared a proposal in September for setting up a gold exchange, wherein the yellow metal will be traded in the form of electronic gold receipts and the bourse will help in having a transparent domestic spot price discovery mechanism.

The instruments representing gold will be called electronic gold receipts and will be notified as securities. These EGRs will have trading, clearing and settlement features akin to any other securities. The gold exchange, encompassing the entire ecosystem of trading of EGR and physical delivery of gold, is expected to create a vibrant gold ecosystem in India. In a December 31 notification, Sebi said the vault manager will be registered and regulated as a Sebi 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.

Any person intending to carry on the business as a vault manager can make an application to Sebi for grant of a certificate of registration.

Spelling out eligibility criteria, Sebi said the applicant shall be a body corporate incorporated in India and shall have the minimum net worth of Rs 50 crore. Every certificate of registration granted will be valid unless it is suspended or cancelled by Sebi. "Where a vault manager is carrying on any activity besides those laid down in these regulations, then the activities relating to his business as vault manager shall be separate and segregated from all other activities including earmarking separate space for storage of gold for the trading of EGR and storage of goods for its other business," Sebi said.

The vault managers are required to have systems for recording all transactions in electronic form pertaining to vaulting services. They need to maintain the documents to ensure that gold is traceable; details of storage, transfer and withdrawal of gold; purity, quantity and weight of deposited gold; and creation and extinguishment of EGRs.

Further, they need to preserve these records and documents for a minimum period of five years. Also, they need to abide by the code of conduct specified by the regulator. With regard to deposits of gold into vaults, Sebi said any person desirous of creating EGRs will have to place a request for the deposit of the gold with the registered vault manager.