In the Budget of 2018-19, the government had announced its intent to establish a system of regulated gold exchanges in the country and notified that the market watchdog SEBI will be the regulator of these exchanges. Further, the objective of the regulated gold exchange as per SEBI-
1. Efficient and transparent domestic spot price discovery;
2. Assurance in the quality of gold;
3. Promotion of India good delivery standard with active retail participation;
4. Greater integration with financial markets;
5. Augment gold recycling in the country.
After the extensive discussions with the Government/public, SEBI introduced SEBI Vault Managers Regulations, 2021 on 31st December, 2021 which talks about the process of becoming a Vault Manager (VM) till the inspection of the records of VM.
APPLICATION FOR REGISTRATION:
Any person who wishes to become a Vault Manager or intends to carry on the business of Vault Manager shall make an application for registration to SEBI in Form A along with registration fee of Rs. 10 Lakh. While applying for the registration, applicant should fulfill the following criteria-
A. Body corporate incorporated in India;
B. Minimum net worth of Rs. 50 Crore;
C. Furnishing the refundable Financial Security Deposit as may be prescribed by the SEBI;
D. Adequate infrastructure for the safe deposit, storage and withdrawal of gold;
E. Adequate insurance to cover the losses;
F. SOP in respect of functioning as Vault Managers.
APPROVAL BY SEBI FOR THE GRANT OF REGISTRATION:
Upon receipt of application and other necessary information, SEBI will scrutinize the application and grant the certificate of registration to the applicant in Form B. While granting the registration, SEBI shall consider whether the applicant-
A. Fulfils the net worth requirement (Rs. 50 Crore);
B. Has adequate infrastructure, office space, vaults for the deposit and storage of gold;
C. Has competent person who has relevant experience, knowledge and ability of managing the business of vault management;
D. Has SOP for the effective and efficient discharge of its functions;
E. Has been refused registration by SEBI previously or the registration has been cancelled by the SEBI;
F. Engaged in any other business other than Vault Management service;
G. Is not involved in any proceedings connected with the securities market;
VALIDITY OF THE CERTIFICATE OF REGISTRATION:
Every certificate of registration granted shall be valid unless it gets suspended or cancelled by SEBI.
DUTIES AND OBLIGATIONS OF THE VAULT MANAGER:
The Vault Manager-
A. Shall be responsible for taking the deposit of gold as per the procedure prescribed;
B. Shall store the gold only in recognized vaults;
C. Shall create Electronic Gold Receipt (EGR);
D. Shall not create EGR without underlying physical gold;
E. Shall maintain records and information of all the transactions pertaining to the recognized vaults;
F. Shall have data recovery system to prevent loss/damage of e-records;
G. Shall take necessary steps to maintain the quality and quantity of the gold stored in the recognized vaults;
H. Shall have internal adequate control to prevent manipulative activity;
I. Shall have a procedure for the periodic reconciliation of physical gold with the corresponding record of EGR;
J. Shall deliver gold to the Beneficial Owner of EGR;
K. Shall not sell, remove, dispose or create any kind of interest by way of pledge/hypothecation on the gold deposited in the vault for the creation of EGR.
MAINTENANCE OF RECORDS:
The Vault Manager shall preserve and maintain the following records and information-
A. Document to ensure that gold is traceable;
B. Details of storage, transfer and withdrawal of gold;
C. Purity, quantity and weight of the deposited gold;
D. Creation and extinguishment of EGR;
E. Depositors of gold under the Know Your Depositor (KYD) norms;
F. All reports submitted to SEBI.
The Vault Manager shall intimate SEBI the place where these records are stored and the Vault Manager shall preserve these records for a minimum period of five years.
ELECTRONIC GOLD RECEIPT (EGR):
After extensive discussions with various stakeholders, Government and public, it decided to divide the entire transaction of Electronic Gold Receipt into three steps-
STEP 1- CONVERSION OF PHYSICAL GOLD INTO EGR-
Any person desirous of creating EGR shall place a request for the deposit of gold with the Vault Manager. The Vault Manager upon receipt of request and physical gold shall record the relevant information and create EGR. While creating EGR, the Vault Manager shall ensure that no EGR is created without the presence of physical gold. Upon creation of EGR, the depository shall make necessary arrangement for the trading of it on the stock exchange.
STEP 2- TRADING OF EGR ON THE STOCK EXCHANGE-
The stock exchange shall allow trading of EGR on continuous basis. The Clearing Corporation shall settle the trades executed on the stock exchange by way of transferring EGR/cash to the buyer and seller of EGR respectively.
STEP 3- CONVERSION OF EGR INTO PHYSICAL GOLD-
Beneficial Owner intending to obtain the physical gold shall make a request to the depository for the same. Depository shall forward the same to the respective Vault Manager. The Vault Manager after delivering the gold to the beneficial owner and after extinguishing the EGR shall share the required date with depository for the reconciliation.
INSPECTION AND AUDIT
SEBI may appoint one or more investigating officer to undertake the inspection and audit of the books of accounts, records, documents and deposit of gold of the Vault Manager to-
A. Ensure that the books of accounts, records, documents and deposit of gold are maintained in the manner prescribed;
B. Examine the complaints, if any received from the investors against the Vault Manager;
C. Ascertain whether the provisions of these regulations have been complied with;
D. Inspect the affairs of the Vault manager.
Before carrying out the inspection, SEBI shall give at least 10 days’ notice to the Vault Manager and the Vault Manager shall during the period of inspection give all the assistance to the investigating officer.
CONCLUSION: The system of regulated gold exchanges will ensure efficient and transparent domestic spot price discovery, will give assurance in the quality of gold and will promote India as good delivery standard with active retail participation.
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