Electronic Gold Receipts: SEBI clarifies fees payable by securities brokers

The Securities and Exchange Board of India (SEBI) has taken the next big step towards operationalizing spot gold exchanges in the country. It has now clarified the fees that a stockbroker would be required to pay to the market regulator for selling and buying transactions of electronic gold receipts (EGR) on exchanges.

SEBI has now introduced a fee of ₹0.00010 percent of turnover (₹10 for every ₹1 crore transaction) for EGR. These fees will be applicable for buying and selling transactions in EGR at the offered gold exchanges. SEBI has also stipulated that each Clearing Member and Self-Clearing Member trading in EGR should have a deposit of ₹1 crore.

physical gold

Simply put, an EGR is an electronic receipt issued on the basis of an underlying physical gold deposit in accordance with regulations set by SEBI. Finance Minister Nirmala Sitharaman in the 2021-22 budget declared SEBI to be the regulator of the gold exchanges.

It may be recalled that SEBI in September last year gave the go-ahead for the establishment of a gold exchange, in which the yellow metal will be traded in the form of an EGR. SEBI had said that any recognized exchange, existing or new, could launch EGR trading in a separate segment.

The denomination for EGR trading and the conversion of an EGR into gold may be decided by exchanges with the approval of SEBI.

Commenting on the latest decision, Narinder Wadhwa, Chairman of Commodities Participants Association of India (CPAI) said Activity area these fees are transaction fees in nature and will help to operationalize spot gold exchanges.

Derivatives and ETFs

So far, the only instrument through which exchange members could have exposure to gold is through derivatives and ETFs. “EGR is a new field and a new instrument that we have always wanted. For us to have the opportunity to take delivery as well. Indians have a great love for gold. This EGR will enable investors to have physical gold. This is a welcome step and hopefully there will be good traction for this in the times to come,” Wadhwa said.

He also said that CPAI will soon approach SEBI and the Ministry of Finance to seek clarification as to whether the specified charges would apply to both the sell side and the buy side of each EGR transaction placed through the spot exchange of gold.

It looks like the first spot gold exchange will take off in the next few months and it could most likely be the Bombay Stock Exchange which could roll out a separate segment for this purpose.

In December last year, the Ministry of Finance notified EGR, the instrument representing gold, as “securities”, paving the way for the launch of gold exchanges. These EGRs will have trading, clearing and settlement functions similar to those of any other security.

The gold exchange, encompassing the entire ecosystem of EGR trading and physical gold delivery, is expected to create a vibrant gold ecosystem in India.

In January this year, SEBI had notified regulations for Vault Managers, establishing the standards and requirements for providing vault services for gold traded via EGR to proposed gold exchanges.

Meanwhile, the market regulator has also revised guidelines and introduced net worth standards for brokers, clearing members and self-clearing members trading securities. This is the minimum net worth requirement and existing exchanges may stipulate higher levels than SEBI has prescribed, sources said. The net worth requirement has increased, but deposit levels remain the same, they added.

Experts also clarified that SEBI’s decision to levy 0.00010% should not be seen as a securities transaction tax (STT), which will require an amendment to the finance law and must pass through the government’s budget. ‘Union. This is a royalty not a tax and the proceeds will go to SEBI and not the Treasury, they added.

Published on

February 27, 2022

Dolores W. Simon