World Gold Council seeks to create a spot exchange for gold in India along with local bourses

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The World Gold Council is working with the Indian government, Indian bourses and the markets regulator on plans to create a local physical spot-gold exchange that may start up as soon as next year.

“We are working on a gold exchange for India,” P.R. Somasundaram, managing director for the World Gold Council in India, confirmed to Bloomberg in London tha the move was afoot.

According to him, the finance ministry has formed a gold committee and it had taken this as one of the things to do.

Industry leaders have been discussing the demand for a spot exchange for the bullion in India for a while now. A panel comprising of representatives from institutions such as the Bombay Stock Exchange (BSE), WGC, Commodity Exchange – MCX, Kotak and researchers from think tank Pahle India Foundation have discussed the key challenges such as ensuring instant delivery of a commodity and financing it and transparency in the last mile.

The committee has urged the government to encourage the setting up of a spot exchange, which is not common worldwide with the exception of Turkey, by trading imported gold on it.

The BSE also has plans to seek market regulator Securities and Exchange Board of India (SEBI’s) approval to launch spot trade in bullion as well as offer futures trading in gold and currencies at its subsidiary India International Exchange (INX) in the Gujarat International Financial Tech (GIFT) City.

It’s not a financial asset

At a conference organised by Indian Bullion and Jewellers Association (IBJA) in Mumbai a couple of months ago, Ashish Kumar Chauhan, Managing Director of BSE said that they have applied to SEBI to launch futures trading in gold and currencies at the exchange located at the International Financial Services Centre (IFSC).

Chauhan said that they would be soon applying for approval to launch spot trade in bullion, including gold and silver, at INX. He pointed out that the concept of launching a spot exchange was put forth by Shaktikanta Das, Secretary, Department of Economic Affairs, and the BSE took it forward by signing an agreement with IBJA for a joint venture in the exchange. He said that it was possible to have multiple exchanges.

The plans still face many hurdles including that the state-level rather than central government has responsibility for gold-related matters in India, he said. Increased infrastructure such as gold vaults and reliable receipts for metal are also needed.

The yellow metal is still not perceived as a financial asset in India. It plays various roles such as a commodity for consumption or investment, or as a currency or as a security, but doesn’t fit into the traditional definition of a financial asset. The Reserve Bank of India’s decision to not recognise it as a financial asset has added to the challenge. WGC along with other stakeholders are lobbying for change in few policy-related matters on gold.

The new exchange would bring more order and structure to the market, “which is what the government would love,” Somasundaram was quoted as saying. “It is not going to be a gold exchange like you see here, with bullion banks backing liquidity, it’s going to be very different.”

Gold exchanges around the world are being overhauled and developing new products, as authorities increase pressure to improve regulation and ensure fairness for everyone in the market. The gold council is also working with a group of banks and the London Metal Exchange to start up futures contracts for four precious metals in the city. Gold and silver contracts are expected to go live in July, with platinum and palladium likely to follow in 2018.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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