Why a bullion exchange can be a game changer for India's gold economy

All financial services required to facilitate trading, delivery, financing and vaulting have also been permitted, for which IFSCA will prepare separate regulations
The Union government on Monday notified the setting up of the International Bullion Exchange at the Gujarat International Finance Tec (GIFT) City near Ahmedabad and declared the International Financial Services Centres Authority (IFSCA) as the regulator for spot trading in gold and silver. The move is seen as a game changer for India’s bullion industry, and is expected to put India in a position to set its own price of gold.

All financial services required to facilitate trading, delivery, financing and vaulting have also been permitted, for which IFSCA will prepare separate regulations.

“The International Bullion Exchange will lead to greater integration with the financial markets by enabling gold and other precious metals to become productive assets,” says IFSCA Chairman Injeti Srinivas. “It will create a transparent platform for bullion trading, leading to efficient price discovery, and promote assurance of gold quality for individuals as well as institutional buyers. It will also create a channel for gold recycling through accredited refineries for recycled gold to trade on exchange.”

He, however, added, “There is likely to be a gestation period of six to eight months for the first spot trade in bullion to happen.”

 

The notification allows trading in bullion depository receipt with underlying bullion, which means traders can deliver gold through depository receipts. These receipts will be listed on the bullion exchange. IFSCA will hold discussions with all stakeholders before finalising the regulations for the new exchange as well as trading and financing norms.

Bullion financing, bullion-based loans, bullion loans against collateral, bullion vaulting, clearing and settlement services in relation to bullion spot delivery contracts and bullion depository receipts — all of these have been allowed. Bullion will include gold, silver and the regulator can also allow doré or unrefined gold. Price settlement and delivery can be on the same or the next day.

Already two large vault services facilitating companies have set up shop at GIFT City. All major commodity exchanges, such as MCX and India INX, are awaiting the final norms. As is Dipesh Shah, whom the NSE appointed head of international business and strategies for NSE-IFSC International Exchange last month.

“As a part of the BSE group, India INX will be interested in setting up the International Bullion Exchange,” says V Balasubramaniam, MD, India INX. “We will seek clarity from the IFSC authority before finalising our plans.”

The India Gold Policy Center at the Indian Institute of Management Ahmedabad (IIM-A) had proposed setting up a gold spot exchange at GIFT City. “As volume, number and value of transactions on the exchange grow, it will act as the place that people look to get indications of price — the same way that currently, the industry and trade looks to COMEX, or MCX or Zaveri Bazaar,” says Arvind Sahay, chair, India Gold Policy Center, IIM-A.

The Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) have said that regulating spot trading of gold isn’t under their purview, which was one of the reasons that delayed the spot trading exchange.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel