FinMin bats for 'single rate-single exchange' for gold spot exchange

The Finance Ministry has proposed setting up a single gold spot exchange at a meeting with exchanges last week, all of which want to set up individual spot exchanges.

The Finance Ministry suggested to exchanges they work together to create a single spot exchange in which they could all hold stake, according to a source who was present at the meeting.

After NSEL went bust following a Rs 5,600-crore scam, there has not been an operational spot exchange in India. Exchanges such as MCX and BSE have sought to set up their own exchanges.

As opposed to a commodity derivatives exchanges, which offer both cash- and delivery-settled contracts, and are used for both hedging and speculation, spot exchanges offer delivery-based mechanism for purchase of commodities. Spot exchanges offer settlement on a T+11 basis.

“The Finance Ministry thinks that a single exchange will be better placed to create a liquid market,” another source present at the meeting told Moneycontrol.

The Finance Ministry is keen to take on the dabba market, the illegal system through which off-the-market trades take place.

A source also told Moneycontrol that exchanges may not be keen to take up on the Finance Ministry’s proposal. “A single exchange formula is good but it will not be easy to implement [due to competing interests]. Most exchanges have already done initial work in setting up their own spot exchanges.”

Exchanges on their part pitched for the abolition of the commodity transaction tax (CTT). CTT was introduced in Budget 2013 but exchanges maintain that any revenue gains through it are not commensurate to the losses incurred due to unofficial trades it encourages.

The NITI Aayog in February 2018 submitted a report on ‘Integration of Commodity Spot and Derivatives Market’ that dealt with benefits and challenges in setting up national spot exchanges.

In the report, the NITI Aayog pitched for SEBI to take up regulation of spot exchanges, a role the securities regulator is not keen to take up.

Moneycontrol reported in October that the government may accept SEBI’s suggestion to appoint a sectoral regulator for a gold spot exchange.

In Budget 2018, Finance Minister Arun Jaitley said the government would formulate a comprehensive gold policy to develop gold as an asset class, including establishing “a system of consumer-friendly and trade-efficient system of regulated gold exchanges in the country.”

The proposed gold policy is expected to come out shortly.