Market regulator Securities and Exchange Board of India (SEBI) will examine the key issues that are preventing Electronic Gold Receipts (EGRs) from emerging as an effective and widely accepted benchmark for gold price discovery in India. The initiative forms part of SEBI’s broader strategy to strengthen the commodities market ecosystem and deepen participation across commodity segments.
SEBI Chairman Tuhin Kanta Pandey said, “Our markets offer regulated gold products, viz., through commodity derivatives, Gold ETFs, and Electronic Gold Receipts (EGRs). These regulated products ensure investor protection. EGRs were meant to create a regulated market for trading gold and establish India as a global price-setter for gold. While the EGR framework may need a review, I urge the industry to educate its participants and investors to deal only in regulated gold products”.
One of the important areas under review may be the possible impact of Goods and Services Tax (GST)-related issues, which market participants believe may be acting as a friction point for liquidity and wider acceptance. Pandey said, “We will continue engaging with the Government to resolve GST related issues for participants who wish to receive or deliver commodities through the Exchange platform”. Pandey was speaking at 11th Convention of CPAI on the issue of ‘Integrity, Innovation, Inclusion - Igniting Hypergrowth in Indian Commodities & Capital Markets’ in New Delhi.
EGRs represent the conversion of physical gold into electronic form for the purpose of gold trading. The legal foundation for this framework was laid by government in recognising EGRs as securities in December, 2021. Later SEBI operationalised the gold exchange ecosystem through its circular dated January 10, 2022, which laid down a detailed framework covering vaulting standards, EGR creation and redemption, roles of intermediaries, and risk management norms. Despite this, market traction has remained limited, prompting the regulator to reassess practical impediments affecting participation and liquidity. Recently SEBI has issued advisory against unregulated digital gold products and advised participants to consider regulated products like EGR for digital gold buying.
Beyond EGRs, Pandey reiterated that revival and expansion of the commodities market remains a top regulatory priority. SEBI has constituted two working groups to address long-standing issues. One group is focused on challenges faced by exchanges, brokers and other market participants, while the second group is examining concerns raised by Farmer Producer Organizations (FPOs). These working groups are expected to recommend data-driven measures, including possible easing of restrictions in agricultural commodity derivatives. Pandey highlighted the importance of commodity derivatives and said, “Robust commodity derivatives markets are needed to convert this price volatility into a manageable risk”. He said, commodity markets provide real-time price discovery and also enable price risk management, which supports economy.
SEBI has also been engaging extensively with stakeholders. In July this year, the regulator held consultations with exchanges, clearing corporations, brokers, FPOs, domain experts and industry associations to identify policy and operational steps needed to deepen agri-commodity derivatives markets.
To enhance institutional participation and hedging activity, SEBI is pushing for the entry of banks and insurance companies into commodity markets and is in discussions with the Reserve Bank of India (RBI) and insurance regulator on the matter. He said, “We are engaging with RBI and IRDAI to enable participation of banks and insurance companies in commodity derivatives market. Enhanced institutional participation will bring in higher liquidity, making the market more attractive for hedging”.
In parallel, the regulator is examining measures to strengthen both agri and non-agri commodity segments, including allowing foreign portfolio investors to participate in non-cash-settled, non-agricultural commodity derivative contracts, with the aim of boosting liquidity and improving price discovery.
Pandey stated, “Working groups have been set up to suggest measures to deepen the Agri Commodity Derivatives ecosystem. These expert groups, among other things, are reviewing whether the regulatory framework pertaining to margins, position limits, and delivery and settlement mechanism can be optimized without affecting market integrity. Their recommendations will assist us in taking necessary developmental measures after due consultation with all stakeholders”. He further stated that, a working group to review the non-agri commodity derivatives segment will be notified shortly.
Pandey also stated that SEBI is examining the merger of equity and commodity investor protection funds (IPF). In a consultation paper SEBI has proposed that exchanges will maintain a single IPF covering both equity and commodity segments to harmonise contributions, utilisation, deployment, and governance, with safeguards to protect commodity-segment needs. However, the merger would be subject to maintaining equivalent funds for predominantly commodity-derivative exchanges.
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