IFSCA notifies International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020
In the Union Budget 2020, Union Minister of Finance Corporate Affairs Smt. Nirmala Sitharaman had made an announcement for setting up an International Bullion Exchange at the International Financial Services Centre in GIFT City, Gandhinagar, Gujarat.
Subsequently, the Government of India had notified the bullion spot delivery contract and bullion depository receipt (with bullion as underlying) as Financial Products and related services as Financial Services under the International Financial Services Centres Authority (IFSCA) Act, 2019.
IFSCA has been entrusted with the responsibility of operationalization of this Exchange. In this regard, International Financial Services Centres Authority (Bullion Exchange) Regulations 2020 were approved by the Authority in its meeting held on October 27,2020. The said regulations have been notified and published in the Gazette of India on December 11, 2020.
The regulations inter alia cover the Bullion Exchange, Clearing Corporation, Depository and Vaults. The regulations are divided into the 16 chapters. First half of the regulation deals with the Exchange and Clearing Corporations while the second half pertains to the Vaults and Depositories and related provisions.
The complete text of the notified regulations is as below-
INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY
NOTIFICATION
Gandhinagar, the 4th December, 2020
INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY (BULLION EXCHANGE)
REGULATIONS, 2020
IFSCA/2020-21/GN/REG005.—In exercise of the powers conferred by sub-section (1) of section 28 read with sub-section (1) of section 12 and sub-section (1) of section 13 of the International Financial Services Centres Authority Act, 2019, the International Financial Services Centres Authority hereby makes the following regulations to provide a framework for recognition of bullion exchanges, its clearing corporations, depositories and vaults and for matters connected therewith or incidental thereto, namely: —
CHAPTER l
PRELIMINARY
1. Short title and commencement
(1) These regulations may be called the International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. Definitions
(1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below, and their cognate expressions shall be construed accordingly: —
(a) “Act” means the International Financial Services Centres Authority Act, 2019 (50 of 2019);
(b) “associate” in relation to a person shall include another person:
(i) who, directly or indirectly, by himself, or in combination with other persons, exercises control over the first person;
(ii) who holds control of at least twenty percent of the total voting power of the first person;
(iii) who is a holding company or a subsidiary company of the first person;
(iv) who is a relative of the first person;
(v) who is a member of a Hindu Undivided Family wherein the first person is also a member;
(vi) such other cases where the Authority is of the view that a person shall be considered as an associate based on the facts and factors, including the extent of control, independence and conflict of interest.
(c) “Authority” means the International Financial Services Centres Authority established under sub-section (1) of section 4 of the Act;
(d) “banking company” shall have the same meaning as assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) or a banking company incorporated under a foreign jurisdiction;
(e) “beneficial owner” in relation to a bullion depository receipt means a person whose name is recorded as such with a bullion depository;
(f) “bullion” shall mean precious metals, including gold, silver or any other precious metal in the form of bars or unallocated gold, silver, or such other precious metals, as the Authority may consider relevant in this regard, relating to good delivery, quality, quantity, and any other aspect in relation to bullion trading from time to time;
(g) “bullion clearing corporation” means a Financial Institution under clause
(c) of sub-section (1) of section 3 of the Act, recognised by the Authority under these regulations, to offer clearing and settlement functions in the bullion market;
(h) “bullion clearing member” means a person having clearing rights in any recognised bullion clearing corporation and as such registered by the Authority;
(i) “bullion contract” means a contract for the purchase and sale of bullion, bullion depository receipts or such other bullion products, including derivatives on bullion, bullion spot delivery contracts, and such other contracts as may be permitted by the Authority;
(j) “bullion depository” means a Financial Institution under clause (c) of sub-section (1) of section 3 of the Act, recognised by the Authority under these regulations, to carry on depository business in bullion in an International Financial Services Centre;
(k) “bullion depository receipt” means a receipt issued in electronic form with underlying bullion by a bullion depository, under these regulations, to a depositor on receipt of bullion for storage by an empanelled vault, which can be traded on any recognised bullion exchange;
(l) “bullion exchange” means a Financial Institution under clause (c) of sub-section (1) of section 3 of the Act, established recognised for the purpose of assisting, regulating and controlling bullion contracts in an International Financial Services Centre;
(m) “bullion market” includes the bullion exchanges, bullion clearing corporations, bullion depositories, vaults, bullion contracts dealt therein, and any other persons involved therein;
(n) “bullion trading member” means a person having trading rights in any bullion exchange;
(o) “company” means a company as defined in section 2 of the Companies Act, 2013 and shall include a company incorporated in a foreign jurisdiction;
(p) “consumer” means a constituent of a bullion trading member;
(q) “control” includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
Provided that a director or officer of a target company shall not be considered to be in control over such target company, merely by virtue of holding such position;
(r) “depositor” means a consumer who delivers bullion to the vaults empanelled with any bullion depository for storage;
(s) “good delivery standard” means the quality or standard of bullion as notified by the Bureau of Indian Standards or any other entity as may be determined by the bullion exchange;
(t) “governing body” means the board of directors of the bullion exchange, bullion clearing corporation or a bullion depository;
(u) “insurance company” shall have the same meaning as assigned to it in sub-section (8) of section 2 of the Insurance Act, 1938 (4 of 1938) or an insurance company incorporated under a foreign jurisdiction;
(v) “netting” means the determination by a bullion clearing corporation of net payment or delivery obligations of the bullion clearing members of a bullion clearing corporation by setting off or adjustment of the inter- se obligations or claims arising out of bullion depository receipts;
(w) “net worth” means the aggregate value of paid up equity share capital plus share premium account and free reserves (excluding statutory funds, benefit funds and reserves created out of revaluation) reduced by the investments in businesses, whether related or unrelated, aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off;
(x) “participant” means a bullion depository participant registered as such under these regulations;
(y) “persons acting in concert” in the context of acquisition or holding of bullion depository receipts or control shall mutatis mutandis have the same meaning as assigned to it in clause(q) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or any amendments thereof;
(z) “public” includes any member or section of the public but does not include any bullion trading member or bullion clearing member or their associate or agents;
(aa) “public financial institution” shall have the same meaning as assigned to it in sub-section (72) of section 2 of the Companies Act, 2013.
(bb) “records” or “documents” include records or documents maintained in physical form or as an electronic record as defined under clause (t) of sub section (1) of section 2 of the Information Technology Act, 2002 or in such other form as may be specified by the Authority;
(cc) “registered owner” in relation to bullion depository receipt means a bullion depository whose name is entered as such in the register of the vault manager;
(dd) “regulations” means International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, as may be amended from time to time;
(ee) “regulatory department” means a department of a bullion exchange or a bullion clearing corporation or a bullion depository which is entrusted with regulatory powers and duties and includes such department as may be specified by the Authority;
(ff) “vault” means any premises wherein the vault manager takes custody of the bullion deposited by the depositor and includes a place for storageas approved by Authority;
(gg) “vaulting business” means the business of establishing and maintaining vaults for storage of bullion;
(hh) “vault manager” means a person, registered by the Authority who manages the vault empanelled by a bullion depository for carrying on the vaulting business.
3. Words and expressions used and not defined in these regulations, but defined in the Act or Acts mentioned in the First Schedule to the Act or any rules regulations made thereunder shall have the same meanings respectively assigned to them in those Acts.
CHAPTER II
RECOGNITION OF BULLION EXCHANGE AND BULLION CLEARING CORPORATION
4. Application for recognition of bullion exchange and bullion clearing corporation
(1) No person shall conduct, organise or assist in organising any bullion exchange or bullion clearing corporation unless such person has obtained recognition from the Authority in accordance with these regulations.
(2) Anybody corporate, which is desirous of being recognised as a bullion exchange or bullion clearing corporation may submit an application in the form and manner as may be specified by the Authority.
(1) Every application under sub-regulation (2) shall contain such particulars as may be specified, and shall be accompanied by a copy of the bye-laws of the bullion exchange or bullion clearing corporation, as the case may be, for the regulation and control of bullion contracts and also a copy of the rules relating in general to the constitution of the bullion exchange or the bullion clearing corporation, and in particular, to:
(a) the governing body of such bullion exchange or bullion clearing corporation, its constitution and powers of management and the manner in which its business is to be transacted;
(b) the powers and duties of the office bearers of the bullion exchange or bullion clearing corporation;
(c) the admission into the bullion exchange or bullion clearing corporation of various classes of members, the qualifications for membership, and the exclusion, suspension, expulsion and readmission of such members;
(d) such other matter(s) as may be specified by the Authority.
(4) Every application under sub-regulation (2) for recognition as a bullion exchange or a bullion clearing corporation shall be accompanied with such fee as may be specified by the Authority.
5. Requirements for grant of recognition to a bullion exchange or bullion clearing corporation
(1) The applicant seeking recognition as a bullion exchange or bullion clearing corporation, as the case may be, shall:-
(a) be a company limited by shares;
(b) have demutualized;
(c) have a net worth of 30 million USD, to be maintained on a continuing basis;
(d) have its directors and its shareholders who hold or intend to hold shares, who are fit and proper persons as specified in these regulations;
(e) satisfy the requirements relating to ownership and governance structure specified in these regulations;
(f) have requisite capability including its financial capacity, functional expertise and infrastructure.
Explanation: – For the purposes of the sub-clause (b) of this regulation, the term “demutualised” means ownership and management of the applicant is segregated from the trading rights or clearing rights, as the case may be.
(2) An applicant seeking recognition as a bullion exchange shall, in addition to the conditions as specified in sub-regulation (1), have,
(a) necessary infrastructure for the orderly execution of trades;
(b) an online screen-based trading system;
(c) an online surveillance capability which monitors positions, prices and volumes in real time so as to ensure market integrity;
(d) adequate infrastructure to list bullion depository receipts for trading on its platform, wherever applicable;
(e) necessary capability to have a comprehensive network of trading members and has adequate facility to admit and regulate its members;
(f) necessary arrangements to establish connectivity with its trading members and bullion clearing corporation;
(g) adequate Consumer Education and Protection Fund;
(h) consumers’ grievance redressal mechanism and arbitration mechanism to resolve disputes arising out of trades and its settlement;
(i) facility to disseminate information about trades, quantities and quotes in real time to at least two information vending networks which are accessible to consumers;
(j) adequate systems’ capacity supported by a business continuity plan including a disaster recovery site to ensure fair and equitable access;
(k) in its employment, sufficient number of persons having adequate professional and other relevant experience;
(l) such other conditions as may be specified by the Authority.
6. Grant of recognition to a bullion exchange or bullion clearing corporation
(1) If the Authority is satisfied, after making such inquiry as may be necessary in this behalf and after obtaining such further information as it may require, that the following criteria is met, it may grant recognition to the bullion exchange or the bullion clearing corporation subject to the conditions specified under these regulations, and such other additional conditions as it may deem fit:
(a) that the rules and bye-laws of the bullion exchange or bullion clearing corporation, as the case
are in conformity with such conditions as may be required with a view to ensure fair dealings and to protect consumers;
(b) that the bullion exchange or the bullion clearing corporation is willing to comply with such other conditions which the Authority, having regard to its business activities, its standing and such other factors, may impose; and
(s) that it would be in the interest of the bullion market and also in interest of trade to grant recognition to the bullion exchange or the bullion clearing corporation.
(2) The conditions which the Authority may impose under sub- regulation (1), may include and relate to, among other matters:
(a) the qualifications for membership of the bullion exchange or bullion clearing corporation;
(b) the manner in which contracts shall be entered into and enforced as between members;
(c) the requirements of ownership, governance, infrastructure, financial capacity and functional expertise of the bullion exchange or the bullion clearance corporation;
(d) the maintenance of accounts of members and their audit by chartered accountants, whenever such audit is required by the Authority;
(e) publication of rules and bye laws of bullion exchange and bullion clearing corporation;
(f) such other matters as the Authority may deem fit in the interest of the consumers and the bullion market.
(3) The recognition granted by the Authority under these regulations shall be for such period subject to renewal as specified by the Authority.
(4) Every grant of recognition to a bullion exchange or a bullion clearing corporation under this regulation shall be published in the Official Gazette, and such recognition shall have effect from the date of its publication in the Official Gazette.
(5) The bullion exchange shall commence trading operations only upon receiving an approval from the Authority in writing.
(6) No application for the grant of recognition shall be rejected except after giving an opportunity to the applicant concerned to be heard in the matter, and the reasons for such rejection shall be communicated to the applicant in writing.
(7) The rules or bye-laws of a bullion exchange relating to any of the matters specified in sub-regulation (3) of regulation 3, shall be amended only with the prior approval of the Authority.
7. Withdrawal of recognition
(1) If the Authority is of the opinion that the recognition granted to a bullion exchange or bullion clearing corporation under these regulations should, in the interest of trade or in public interest, be withdrawn, the Authority may serve on the governing body of such bullion exchange or bullion clearing corporation a written notice that the Authority is considering withdrawal of the recognition for the reasons stated in the notice.
(2) The Authority shall also give an opportunity to the concerned governing body to be heard in the matter.
(3) After considering the submissions, if any, of the concerned governing body, the Authority may withdraw, by notification in the Official Gazette, the recognition granted to the bullion exchange or the bullion clearing corporation.
(4) No such withdrawal shall affect the validity of any bullion contracts entered into or made before the date of such notification of withdrawal.
(5) The Authority may, after consultation with the bullion exchange or the bullion clearing corporation, make such provisions for the due performance of any bullion contracts outstanding on that date, as it deems fit, in the notification of withdrawal or in any subsequent notification similarly published.
CHAPTER III
FUNCTIONS OF THE BULLION EXCHANGE
8. Clearing and settlement of trades
Every bullion exchange shall, with effect from the date of the commencement of operations as a bullion exchange, use the services of a recognised bullion clearing corporation for clearing and settlement of its trades.
9. Agreement between bullion exchange and bullion clearing corporation
(1) Subject to the provisions of sub-regulation (2), a bullion exchange shall avail the services of a bullion clearing corporation pursuantto an agreement in writing between them in the form and manner specified by the Authority.
(2) The bullion exchange shall extend its arbitration mechanism for settlement of disputes or claims arising out of clearing and settlement of trades executed on such bullion exchange.
10. Functions of the bullion exchange
(1) Subject to the provisions of these regulations, it shall be the duty of the bullion exchange to protect the interests of consumers in the bullion market, to regulate bullion contracts, and work with global agencies or institutions in the bullion industry to promote growth, transparency and orderly development of the bullion market by such measures as the Authority may direct.
(2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for:
(a) regulating the bullion contracts;
(b) regulating the working of the bullion trading members, and such other intermediaries who may be associated with the bullion exchange;
(c) establishing and enforcing good delivery standards;
(d) prohibiting fraudulent and unfair trade practices in the bullion market;
(e) promoting consumers’ education and training of intermediaries of bullion market;
(f) calling for information from, undertaking inspection, conducting inquiries and audits of the bullion trading members, intermediaries and other persons associated with the bullion exchange;
(g) levying fees or other charges for carrying out the purposes of this regulation;
(h) setting standards of quality, quantity and other parameters and means of verification of such standards;
(i) setting standards for vaulting and transport of bullion;
(j) performing such other functions as may be specified by the Authority.
CHAPTER IV
GENERAL OBLIGATIONS OF BULLION CLEARING CORPORATIONS
11. General Obligations
(1) A bullion clearing corporation shall comply with the requirements under these regulations and agreement with the concerned bullion exchange.
(2) In addition to the obligations specified under sub-regulation (1), a bullion clearing corporation shall comply with such other requirements that the Authority may impose from time to time.
12. Settlement and Netting
(1) The payment and settlement in respect of a transaction in a bullion exchange and bullion clearing corporation shall be determined in accordance with the netting or grossing procedure as prescribed in the bye-laws of such bullion clearing corporation and such bullion exchange.
(2) Payment and settlement in respect of a transaction between parties referred to in sub-regulation (1), effected under the bye-laws of a bullion exchange or bullion clearing corporation, shall be final, irrevocable and binding on such parties.
(3) When a settlement has become final and irrevocable, the right of the bullion exchange or bullion clearing corporation, as the case may be, to appropriate any collaterals or deposits or margins contributed by a bullion clearing member or by consumers towards its settlement or other obligations in accordance with the bye-laws of the bullion exchange or bullion clearing corporation, shall take priority over any other liability of or claim against the said bullion clearing member or consumers, as the case may be.
Explanation- For removal of doubts, the settlement, whether gross or net, referred to in this regulation is final and irrevocable as soon as the money, bullion or other transaction payable as a result of such settlement is determined, whether or not such money, bullion or other transaction is actually paid.
13. Right of bullion clearing corporation
The right of a bullion clearing corporation to recover the dues from its bullion clearing members, arising from the discharge of their clearing and settlement functions, from the collaterals, deposits and the assets of the bullion clearing members, shall have priority over any other liability of or claim against the bullion clearing members.
CHAPTER V
OWNERSHIP OF BULLION EXCHANGE AND BULLION CLEARING CORPORATION
14. General conditions
(1) Save as otherwise provided in these regulations, the shareholding or voting rights of any person in a bullion exchange or a bullion clearing corporation shall not exceed the limits specified in this Chapter.
(2) The shareholding as specified in this Chapter shall include any instrument owned or controlled, directly or indirectly, that provides for entitlement to equity or rights over equity at any future date.
15. Shareholding in a bullion exchange or bullion clearing corporation
(1) Any Indian bullion exchange or recognized stock exchange, or any bullion exchange or stock exchange of a foreign jurisdiction, may on its own or through a consortium form a subsidiary to provide the services of a bullion exchange or bullion clearing corporation, as the case may be, wherein up to fifty-one per cent of paid up equity share capital is held by such bullion exchange or stock exchange or the consortium formed by them.
(2) The remaining share capital may be acquired or held by any other person (whether Indian or of foreign jurisdiction) and such person shall not at any time, directly or indirectly, either individually or together with persons acting in concert, acquire or hold more than five per cent of the paid up equity share capital in a bullion exchange or bullion clearing corporation, as the case may be.
Provided that a bullion exchange, a bullion depository, a stock exchange, a depository, a banking company, an insurance company, or a commodity derivatives exchange, whether Indian or of foreign jurisdiction, or a public financial institution of Indian jurisdiction, or a bilateral or multilateral financial institution approved by the Central Government, may acquire or hold, either directly or indirectly, either individually or together with persons acting in concert, up to fifteen per cent of the paid-up equity share capital of a bullion exchange or bullion clearing corporation, as the case may be.
16. Eligibility for acquiring or holding shares in bullion exchange or bullion clearing corporation
(1) No person shall, directly or indirectly, acquire or hold any equity shares or voting rights of a bullion exchange or bullion clearing corporation unless it is a fit and proper person:
Provided that the onus shall be on the bullion exchange or bullion clearing corporation to ensure that all its shareholders are fit and proper persons:
Provided further that such a requirement to ensure that all its shareholders are fit and proper persons shall not be applicable to a listed bullion exchange for shareholding of a person who, directly or indirectly,
acquires or holds less than five percent equity shares or voting rights of such listed bullion exchange.
(3) Any person who acquires equity shares or voting rights, in a bullion exchange or bullion clearing corporation, directly or indirectly, either individually or together with persons acting in concert, that entitles the person(s) so acquiring to exercise any voting rights above five per cent, shall seek prior approval of the Authority, in such form and the manner specified by the Authority, within fifteen days of such acquisition.
(4) The application for seeking approval in terms of sub-regulation (2), shall be made to the Authority through the concerned bullion exchange or bullion clearing corporation.
(5) The bullion exchange or bullion clearing corporation shall verify the declarations and undertakings given by the shareholders under sub-regulation and forward the application along with its recommendation for approval to the Authority.
17. Monitoring of shareholding limits
The bullion exchange or bullion clearing corporation shall put in place an adequate monitoring mechanism to ensure compliance with the shareholding conditions specified in these regulations, at all times.
18. Disclosure of shareholding
The bullion exchange or the bullion clearing corporation, as the case may be, shall disclose to the Authority, in the format specified by the Authority, their shareholding pattern on a quarterly basis within fifteen days from the end of each quarter, including the following:
(a) the names of the ten largest shareholders along with the number and percentage of shares held by them;
(b) the names of the shareholders who had acquired shares in that quarter. Record keeping
19. In addition to the requirements under other laws in force, a bullion exchange and bullion clearing
corporation shall maintain and preserve all the books, registers, other documents and records relating to the issue or transfer of its securities for a period of not less than eight years.
CHAPTER VI
GOVERNANCE OF BULLION EXCHANGE AND BULLION CLEARING CORPORATION
20. Governance of bullion exchange and bullion clearing corporation
(1) Every bullion exchange and bullion clearing corporation shall adopt the broader principles of governance prescribed by International Organization of Securities Commissions (IOSCO) and principles for Financial Market Infrastructures (FMI) and such other governance norms as may be specified by the Authority, from time to time.
(2) The governing board of every recognised bullion exchange and recognised bullion clearing corporation shall include shareholder directors, public interest directors, and managing director, subject to the following:
(i) The Chairperson shall be elected by the governing board from amongst the public interest directors;
(ii) The number of public interest directors shall not be less than the number of shareholder directors;
(iii) The bullion trading members or bullion clearing members or their associates and agents, irrespective of the bullion stock exchange or bullion clearing corporation of which they are members, shall not be on the governing board;
Provided that persons on the board of a public financial institution or a bank which is in public sector, or which either has no identifiable ultimate promoter, or the ultimate promoter is in public sector or has well diversified shareholding, and such public financial institution or bank or its associate is a clearing member and/or trading member, shall not be deemed to be bullion clearing members and/or bullion trading members or their associates;
Provided further that the independent directors of the associates of public financial institution or bank in public sector, who are bullion clearing member and/or bullion trading member and where the majority shareholding is that of such public financial institution or bank in the public sector, shall also not be deemed to be a bullion clearing members and/or trading members.
(iv) The appointment of directors shall be subject to the prior approval of the Authority and the fulfilment of other requirements as specified by the Authority.
(v) Public interest director shall be nominated for a term of three years, extendable by another term of three years subject to performance review as may be specified by the Authority;
(vi) The appointment of managing director shall be for a term not exceeding five years subject to maximum age limit of 65 years.
(3) Such other conditions may be specified by the Authority for securing good governance of the bullion exchange or bullion clearing corporation.
21. Code of Conduct for directors and key management personnel
(1) Every director and key management personnel of a recognised bullion exchange and a recognised bullion clearing corporation shall abide by the Code of Ethics and Conduct specified by the Authority.
(3) Every director and key management personnel of a recognised stock exchange and a recognised bullion clearing corporation shall be a fit and proper person as provided in Chapter XIV.
(2) The Authority may, for any failure by the directors or key management personnel to abide by these regulations or Code of Ethics and conduct or in case of any conflict of interest, either upon a reference from the recognised stock exchange or the recognised bullion clearing corporation or suo motu, take appropriate action including removal or termination of the appointment of any director or key management personnel, after providing them with a reasonable opportunity of being heard.
22. Segregation of regulatory departments
The bullion exchange and bullion clearing corporation shall segregate its regulatory departments from other departments in the manner specified by the Authority.
23. Statutory committees
(1) Every recognised bullion exchange or recognized bullion clearing corporation shall constitute a functional committee, comprising of member and core settlement guarantee fund committee; a grievance redressal committee; a nomination and remuneration committee; an oversight committee, comprising of standing committee on technology; an advisory committee; a regulatory oversight committee; audit committee; and a risk management committee.
(2) The composition, quorum and functions of the committees under sub-regulation (1) shall be in the manner as specified by the Authority.
24. Appointment of compliance officer
(1) Every recognised bullion exchange and recognised bullion clearing corporation shall appoint a compliance officer who shall be responsible for monitoring the compliance of these regulations, or circulars or guidelines or directions issued by the Authority and for the redressal of investors’ grievances.
(2) Non-compliance of any provision stated in sub-regulation (1) shall be immediately and independently reported by the compliance officer to the Authority.
CHAPTER VII
GENERAL OBLIGATIONS OF BULLION EXCHANGE AND
BULLION CLEARING CORPORATION
25. Consumer Education and Protection Fund
Every bullion exchange shall establish a consumer protection fund in the form of a trust, for the purpose of consumer education and providing compensation to consumers in case of defaults by the bullion trading members, in the manner as may be specified by the Authority.
26. Fund to guarantee settlement of trades
(1) Every bullion clearing corporation shall establish and maintain a Fund to guarantee the settlement of trades executed on a bullion exchange.
(4) The contribution to the Fund shall be made by the bullion exchange, the bullion clearing corporation, the bullion trading members and clearing members, in the manner as may be specified by the Authority.
(3) In the event of any clearing member failing to honour their settlement obligations, the Fund shall be utilized to complete the settlement.
(4) The corpus of the Fund shall be adequate to meet the settlement obligations arising on account of failure of clearing member(s).
(5) The sufficiency of the corpus of the Fund shall be tested by way of periodic stress tests, in the manner specified by the Authority.
(6) The utilization of the Fund shall be in accordance with the norms specified by the Authority.
27. Utilization of profits and investments
(1) The utilization of profits and investments by bullion exchange or bullion clearing corporation shall be in accordance with the norms specified by the Authority.
(2) The bullion exchange or bullion clearing corporation shall not carry on any other activity whether involving deployment of funds or otherwise without prior approval of the Authority;
Provided that prior approval of the Authority shall not be required in case of treasury investments if such investments are as per the investment policy approved by the governing body of bullion exchange or bullion clearing corporation;
Provided further, that the bullion exchange or bullion clearing corporation may engage in activities involving deployment of funds or otherwise, that are unrelated or not incidental to its activity as a bullion exchange or bullion clearing corporation, as the case may be, through a separate legal entity and subject to approval of the Authority.
28. Equal, fair and transparent access
(1) The bullion clearing corporation shall lay down a policy framework for ensuring that there is no discrimination while rendering clearing and settlement services in settlement of trades executed on shareholder bullion exchange(s) and executed on non-shareholder bullion exchange(s).
(2) The framework under sub-rule (1) shall be made available on the website of the bullion clearing corporation and shall provide the basis on which access to clearing and settlement services of the bullion clearing corporation has been provided to shareholder bullion exchange(s) along with the manner in which the said requirements should be complied with by non-shareholder bullion exchange(s) to obtain access to clearing and settlement services.
(6) The bullion exchange or bullion clearing corporation shall ensure equal, unrestricted, transparent and fair access to all persons without any bias towards its associates and related entities.
CHAPTER VIII
MEMBERSHIP OF THE BULLION EXCHANGE OR BULLION CLEARING CORPORATION
29. Qualifications for membership of the bullion exchange or bullion clearing corporation
The qualification criteria for grant of membership to the bullion exchange or the bullion clearing corporation, including form of the organisation structure, minimum qualifications and experience of the professional employees, the minimum net worth and financial strength in terms of threshold of key financial ratios, disqualifications, categories of the members and the minimum net worth requirements and the limit, if any, of the volume of trades or clearing or settlement which such member can perform in the bullion exchange or the bullion clearing corporation, the manner in which the applications for the membership shall be processed by the bullion exchange or the bullion clearing corporation, the provisions on avoidance of conflicts, ethical behaviour and conduct of the applicants
and the members in the business, shall be detailed in the bye-laws of the bullion exchange or the bullion clearing corporation.
30. Contracts between member of a bullion exchange and consumer
A contract between members of a bullion exchange or with a bullion clearing member or consumer shall be in writing and shall be enforced in accordance with the rules and bye-laws of the bullion exchange or the bullion clearing corporation as the case may be, of which they are members.
CHAPTER IX
BULLION DEPOSITORIES
31. Recognition of bullion depositories
The provisions relating to application for recognition, recognition by the Authority and withdrawal of recognition contained in regulations 3, 5 and 6 shall mutatis mutandis apply to a bullion depository.
32. Requirements for grant of recognition to a bullion depository
(1) The Authority shall take into account for considering grant of recognition to a bullion depository, all matters which are relevant to the efficient and orderly functioning of a bullion depository and in particular, the following, namely, whether bullion depository has —
(a) net worth of not less than 15 million USD, on a continuous basis;
(b) bye-laws and legal documents are consistent with the objective of the bullion depository and for protection of the interest of consumers;
(c) entered into an agreement with a vault manager which has necessary infrastructure, standards, for safe storage of bullion and its security;
(d) established standards of encrypted transmission and reconciliation mechanisms for electronic communications of data between the bullion depository, participants, issuers and issuers’ agents;
(e) the physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities including back up sites and facilities and to the electronic data communication network connecting the bullion depository, participants, issuers and issuers’ agents is controlled, monitored and recorded;
(f) made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to such beneficial owners by the wrongful act, negligence or default of the bullion depository or its participants or agents or of any of their employees.
2) The Authority shall, before granting an approval to a bullion depository to commence its operations under these regulations, make a physical verification of the infrastructure facilities and systems established by the bullion depository and a vault.
CHAPTER X
OWNERSHIP AND GOVERNACE NORMS OF BULLION DEPOSITORY
33. The ownership and governance norms specified for bullion exchange and bullion clearing corporation in Chapter V and VI shall mutatis mutandis apply to a bullion depository.
CHAPTER XI
RIGHTS AND OBLIGATIONS OF BULLION DEPOSITORIES, PARTICIPANTS AND BENEFICIAL OWNERS
34. Agreement between a bullion depository and a participant
(1) A bullion depository shall enter into an agreement with one or more participants as its agent.
(2) Every agreement under sub-regulation (1) shall be in such form as may be specified by the bye-laws of such bullion depository.
35. Services of a bullion depository
Any person, through a participant, may enter into an agreement, in such form as may be specified by the bye-laws, with any bullion depository for availing its services.
36. Registration of transfer of bullion depository receipt
Every bullion depository shall, on receipt of intimation from a participant, register the transfer of bullion depository receipt in the name of the transferee.
37. Bullion depository receipts to be in fungible form
All bullion depository receipts issued by a bullion depository shall be in dematerialised form.
38. Rights of bullion depositories and beneficial owners
(1) A bullion depository shall be deemed to be the registered owner of the bullion for the purposes of effecting transfer of ownership of bullion on behalf of a beneficial owner.
(2) Save as otherwise provided in sub-regulation (1), the bullion depository as a registered owner of the bullion shall not have any other right in respect of the bullion held by it.
(3) The beneficial owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in respect of its bullion held by a bullion depository.
39. Register of beneficial owner
Every bullion depository shall maintain a register and an index of beneficial owners in such manner as may be prescribed by the Authority.
40. Pledge or hypothecation of bullion held in a bullion depository
(1) A beneficial owner may, with the previous approval of the bullion depository, create a pledge or
hypothecation in respect of the bullion owned by such beneficial owner through a bullion depository.
(2) Every beneficial owner shall give an intimation of such a pledge or hypothecation to the bullion depository and such bullion depository shall thereupon make entries in its records accordingly.
(3) Any entry in the records of a bullion depository under sub-regulation (2) shall be treated as an evidence of a pledge or hypothecation.
41. Furnishing of information and records by bullion depository and vault manager
(1) Every bullion depository shall furnish to the vault manager of bullion depository receipt information about the transfer of bullion in the name of beneficial owners at such intervals and in such manner as may be specified by the bye-laws.
(2) Every vault manager shall make available to the bullion depository copies of the relevant records in respect of bullion held by such depository, as may be prescribed.
(3) No bullion depository shall engage a vault manager unless such vault manager has obtained registration from the Authority.
42. Bullion depositories to indemnify loss in certain cases
(1) Without prejudice to the provisions of any other law for the time being in force, with respect to any loss
caused to the beneficial owner due to the wrongful act, negligence or default of the bullion depository or the participant, the bullion depository shall indemnify such beneficial owner.
(2) Where the loss due to the negligence of the participant under sub- regulation (1) is indemnified by the bullion depository, the bullion depository shall have the right to recover the same from such a participant.
CHAPTER XII
VAULT MANAGERS
43. Registration of Vault Managers
(1) A vault manager shall make an application to the Authority in the form and manner specified by the Authority for obtaining registration. The vault manager shall also furnish an undertaking to the effect that it acknowledges and agrees to its liabilities under sub-regulation (1) of regulation 43.
(2) The Authority may specify the requirements, including net worth and infrastructure for operating as vault for storing bullion.
(3) The Authority after duly satisfying itself shall grant registration to the applicant.
(4) The Authority shall not reject any application of registration without giving due opportunity of being heard to the applicant.
(5) The registration shall be subject to annual renewal as per the procedure specified by the Authority. Liabilities of Vault Managers
44. Liabilities of Vault Managers
(1) A vault manager is liable for loss of, or any injury to, bullion stored in a vault managed by it, caused by
its failure to exercise such care and diligence in regard to the bullion as a careful and vigilant owner of the bullion in their custody.
(2) In case the bullion is damaged or lost in spite of taking all care and precautions by the vault manager due to unavoidable circumstances, the compensation equal to the value of bullion at the time of deposit of the bullion shall be payable by the vault manager.
(3) In case the bullion is damaged or lost due to the negligence of the vault manager, then, the compensation shall be equal to value of the bullion plus the loss of profit shall be payable to the beneficial owner or the depositor, as the case may be.
(4) The vault manager shall not be responsible for any loss, destruction, damage or deterioration of the bullion attributable to circumstances such as force majeure, act of war, act of public enemies and the like.
(5) The vault manager shall keep adequate insurance to cover and mitigate various risks, as may be specified by the bullion depository or the Authority.
45. Vault manager to keep records and accounts of vaulting business
(1) Every vault manager shall keep in a place of safety a complete and accurate set of records and accounts of all transactions in electronic form pertaining to the operation of a vault including records and accounts of all bullion received in the vault and withdrawn there from, and of all bullion depository receipts issued in this respect through the bullion depository.
(2) Subject to the provisions of sub-regulation (1), the vault manager shall keep all the records and accounts of the vault business in numerical sequence separate and distinct from the records and accounts of any other business in such form and in such manner and for such period as the Authority or the bullion depository with which such vault or vaults are empaneled, may specify.
(3) The vault manager shall make available to the Authority, bullion exchange and bullion depository with which such vault or vaults is empanelled, for inspection of the records and accounts of the vault business at any time as may be desired by them.
CHAPTER XIII
BULLION DEPOSITORY RECEIPTS
46. Bullion depository receipts
(1) No person shall issue bullion depository receipts except in accordance with these regulations.
(2) Bullion depository receipts, which shall be in electronic form, shall be a document of title to bullion containing the following particulars, namely:
(a) Bullion depository receipt number;
(b) vault registration number and date up to which it is valid;
(c) name of the vault and its complete postal address;
(d) name and address of the depositor;
(e) date of issue of the bullion depository receipt;
(f) statement that the bullion received shall be delivered to the beneficial owner thereof;
(g) rates of storage charges and handling charges;
(h) description of the bullion with particulars of quantity and grade;
(i) market value of the bullion at the time of deposit;
(j) private marks of depositor on the bullion, if any;
(k) name of the insurance company indemnifying for fire, flood, theft, burglary, misappropriation, riots, strikes or terrorism;
(l) date and signature of the vault manager or his authorised agent;
(m) and such other particulars as may be prescribed by the bullion exchange or the Authority.
(3) In case a vault manager wilfully omits from a bullion depository receipt any of the particulars set out in sub-regulation (1), such vault manager shall be liable for damages caused by such omission.
(4) No bullion depository receipt shall, by reason of the omission only of any of the particulars set-forth in sub-regulation (1), be deemed to be invalid for the purpose of settlement of disputes or claims.
47. Depositing bullion into vaults
(1) A depositor shall place a request for the deposit of the bullion, through a participant, with a vault empaneled with a bullion depository.
(2) The vault manager, or any person authorised in this behalf, shall ensure the completion of all necessary documentation, at the time of deposit of bullion by the depositor.
(3) At the time of deposit of the bullion, the vault manager shall employ the services of an assayer, with the prior approval of the Authority, for the purposes of testing the good delivery standard of the bullion.
(4) The vault manager shall ensure that the bullion deposited into the vault meets the good delivery standard, as may be specified by the Authority.
48. Issue of bullion depository receipt
(1) On receipt of bullion from a depositor and after completion of all necessary documentation, the vault manager shall issue a bullion depository receipt in the name of such depositor in electronic form through a bullion depository, in such manner as may be provided.
(9) Every depositor and beneficial owner shall have an account with the bullion depository.
(3) The bullion depository shall manage the bullion depository receipts in electronic form, in such manner as may be specified.
49. Withdrawal of bullion
(1) On the receipt of a request for the withdrawal of bullion from a beneficial owner through a participant, the bullion depository shall grant an approval and intimate the same to the concerned vault manager.
(2) On receipt of an approval under sub-regulation (1) above, the vault manager shall deliver the bullion represented by such bullion depository receipt to the beneficial owner, subject to the beneficial owner producing such documents as may be required and acknowledging in writing the receipt of the bullion.
(3) If a vault manager refuses or fails to deliver the bullion in compliance with the provisions of this regulation, the burden of proof shall lie on the vault manager to establish the existence of a lawful excuse for the refusal or failure.
(4) On the withdrawal of bullion from the vault, the vault manager shall intimate the same to the bullion depository.
50. Delivery of bullion to be made after due charges are paid
When a bullion depository receipt has been issued in respect of any bullion, the vault manager shall not deliver the bullion to the beneficial owner of bullion depository receipt until the due charges are paid to the vault manager and the bullion depository receipt is surrendered for cancellation.
CHAPTER XIV
FIT AND PROPER REQUIREMENTS
51. Requirement of ‘fit and proper’
(1) The bullion exchange, bullion clearing corporation, bullion depository and vault manager shall ensure that all its directors, key managerial personnel and material shareholders are fit and proper persons, at all times.
(2) For the purposes of sub-regulation (1), a person shall be deemed to be a fit and proper person if:
(a) such person has a general reputation and record of fairness and integrity, including but not limited to –
(i) financial integrity;
(ii) good reputation and character; and
(iii) honesty;
(b) such person has not incurred any of the following disqualifications –
(i) the person or any of its whole-time directors or managing partners, has been convicted by a court for any offence involving moral turpitude or any economic offence or any offence against the securities laws;
(ii) an order for winding up has been passed against the person;
(iii) the person, or any of its whole-time directors or managing partners, has been declared insolvent and has not been discharged;
(iv) an order, restraining, prohibiting or debarring the person or any of its whole-time directors or managing partners, from dealing in securities or from accessing the securities market or the bullion market, has been passed by the Authority or any other regulatory authority and a period of three years from the date of the expiry of the period specified in the order has not elapsed;
(vii) any other order against the person, or any of its whole-time directors or managing partners, which has a bearing on the bullion market, has been passed by the Authority or any other regulatory authority, and a period of three years from the date of the order has not elapsed;
(viii) the person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;
(ix) the person is financially not sound or has been categorized as a wilful defaulter;
(x) fugitive economic offender; or
(xi) any other disqualification as specified by the Authority.
(3) If any question arises on the decision of a bullion exchange or bullion clearing corporation or bullion depository as to whether a person is a fit and proper person, the Authority’s decision on such question shall be final.
CHAPTER XV
REGISTRATION OF INTERMEDIARIES AND OTHER PERSONS
52. Registration of intermediaries and persons associated with the bullion market
(1) No bullion trading member, bullion clearing member, participant, refiner, depositor, logistic provider, vault manager and such other intermediary who may be associated with the bullion market as the Authority may specify , shall participate in any activity relating to the bullion market except under, and in accordance with the conditions of a certificate of registration obtained from the Authority, subject to such requirements including net worth, infrastructure, relevant experience, as may be specified by the Authority.
(5) Persons in sub-regulation (1) shall comply with the fit and proper criteria specified in regulation 50.
(6) Every application for registration shall be in such form and manner and on payment of such fees as may be specified by the Authority.
(7) The application shall be processed by the concerned bullion exchange, bullion clearing corporation, bullion depository, as the case may be, subject to fulfilment of conditions with regard to eligibility requirements as specified by the Authority and forwarded to the Authority with recommendation for granting registration.
(1) The Authority may, by order, either suo motu or on the recommendation of the concerned bullion exchange or bullion clearing corporation or bullion depository as the case may be, suspend or cancel a certificate of registration by the Authority.
Provided that, except in the case of voluntary surrender of certificate of registration, no order under this sub-regulation shall be made unless the person concerned has been given a reasonable opportunity of being heard.
CHAPTER XVI
MISCELLANEOUS
53. Maintenance of website
Every bullion exchange, bullion clearing corporation, bullion depository and vault manager must maintain a website or any other universally accessible repository of electronic information to:
(1) publish all information that it is obliged to publish under these regulations;
(2) provide a copy of all rules, regulations, bye-laws made and all guidance issued, including all amendments therein;
(3) provide information about the manner in which applications to be made for membership or association; and
(4) provide material information about the functions.
54. Annual net worth certificate
Every bullion exchange, bullion clearing corporation and bullion depository shall submit an audited net worth certificate from their respective statutory auditor on an annual basis by April of every year for the preceding financial year.
55. Maintenance of books of accounts, records and other documents
(1) Every bullion exchange, bullion clearing corporation, bullion depository, vault and such other intermediaries mentioned in Chapter XV shall maintain and preserve such books of account and other documents as may be specified by the Authority.
(2) Such books of accounts, records and other documents specified by the Authority shall be maintained for a period of at least five years.
56. Returns and reports
(1) Every bullion exchange, bullion clearing corporation, bullion depository and vault shall furnish to the Authority at such time and in such form and manner as may be specified by the Authority or as the Authority may direct, such returns and statements and such particulars, as the Authority may, from time to time, require.
(2) Without prejudice to the provisions of sub-regulation (1), every bullion exchange, bullion clearing corporation, bullion depository and vault, within ninety days after the end of each financial year, submit to the Authority a report in such form, as may be specified by the Authority, giving a true and full account of its activities, policy and programmes during the previous financial year.
57. Regulatory fee
Every recognised bullion exchange, bullion clearing corporation, bullion depository and other intermediaries shall pay a regulatory fee as may be specified by the Authority.
58. Power to remove difficulties, specify procedures and issue clarifications
In the event of any difficulty in giving effect to the provisions of these regulations or in effective operation of these regulations, the Authority may specify the necessary norms, procedures, processes, manners or provide relaxations, by way of guidelines or circulars.
INJETI SRINIVAS, Chairperson
[ADVT.-III/4/Exty./404/2020]
