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BSE is ready with the technology to introduce electronic gold receipts (EGRs) on its platform. This will help create uniform price structure for the precious metal across the country, said BSE's chief business officer Sameer Patil on Sunday.

The stock exchange will acquire the required internal approvals and apply to markets regulator Sebi for the launch of the new class of security on its platform, Patil told PTI. He added that the exchange was working on the technology for a very long and was awaiting for in-principle approval to take it further.

This comes after the Sebi board on Tuesday cleared a proposal for gold exchange, wherein the yellow metal will be traded in the form of EGRs and will help in having a transparent domestic spot price discovery mechanism. India currently has trading only in gold derivatives and Gold ETFs, unlike several other countries which have spot exchanges for physical trade in gold.

The instruments representing gold will be called Electronic Gold Receipts (EGRs) and will be notified as securities, with trading, clearing and settlement features similar to other securities that are currently available in India.

BSE had made several presentations to government and regulators on how the process will work. These pertained to how various participants, including banks, vaults, wholesalers, retailers, importers, exporters, etc., will participate in this ecosystem.

Like shares, these EGRs will be held in demat form and can be converted into physical gold when needed., Patil said. To enable trading in physical gold, EGRs (backed by physical gold) will be traded and settled on stock exchanges.

The BSE chief business officer said that the entire trading will be done in three stages that include conversion from physical gold to EGRs, trading of EGRs and again conversion of EGR back to physical gold. To begin with, BSE may plan to launch EGR of 1 kg and 100 gm denominations and the same can be converted to physical gold. To attract retail investors, EGR with smaller denominations of 50 gm, 10 gm and 5 gm will also be launched in a phased manner.

The source of supply of the physical gold to be converted into EGR will be the fresh deposit of gold, coming into the vaults, either through imports or through stock exchanges accredited domestic refineries. A client can also convert physical gold to EGR by depositing physical gold at the designated delivery centre. Exchanges will empanel Vault Service Providers (VSPs) based on guidelines prescribed by Sebi.

Similarly, clients can redeem EGR's back to physical gold, and the process is complete. An interface will be developed between the vault managers (of physical gold), depositories (that hold EGRs in demat) and stock exchanges and clearing corporations that clear the trade.

The move is expected to reduce the existing market inefficiencies that exist in bullion trade and may act as a bridge in integrating spot gold trade with derivatives markets and create a transparent platform for bullion trading.

In addition, a single point trading for both spot and derivatives would provide scale, liquidity and better pricing for all market participants by bringing down cost and cycle time significantly.

Moreover, trading in EGRs will contribute to the existing programs for gold monetization such as Gold Monetization Scheme (GMS), Gold Bonds and Gold Deposits.

In union budget 2021-22, Finance Minister Nirmala Sitharaman announced setting of a gold spot exchange and Sebi will be the designated regulator for the proposed gold exchanges.

(With PTI inputs)

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