What are Electronic Gold Receipts? How are they traded, sold on bourses?

After BSE, the National Stock Exchange (NSE) is trying to roll out the trading of electronic gold receipts on its platform. Market regulator Securities and Exchange Board of India (Sebi) is trying to format the taxation issues related to the product with the government, a report in PTI stated on Thursday. 

Electronic Gold Receipts can be defined as depository gold receipts that can be traded on the stock exchanges. They are similar to stocks and are traded and held in Demat accounts, just like them. 

Under this form of gold, the trading exchange holds the underlying value of the receipt in physical gold in a vault. That means investors buy the gold in dematerialised form and are given gold receipts instead of physical gold. The process is similar to the physical form of equity shares. 

In general, electronic gold trading happens in India through gold derivatives or gold exchange-traded funds on the designated stock exchanges. Electronic Gold Receipt is the first spot physical gold exchange trading product.  

The Sebi had specified before that EGRs will cater to all market participants. That means on the exchange, individual investors and commercial participants along the value chain like importers, banks, refiners, bullion traders, jewellery manufacturers, and retailers, can buy and sell the yellow metal.  

How are EGRs traded?  

For trading EGRs, the physical gold is sourced through imports, accredited domestic refineries, or designated delivery centres and kept in vaults.  

The buyers or investors can convert the physical gold into an EGR by depositing the yellow metal at the designated delivery centre. After the gold is sourced, a depository receipt is created for trading on the stock exchange. For example, a buyer can sell the EGR or convert it to physical gold. 

BSE opens EGR trading 

The BSE was the first stock exchange to launch EGRs on its platform on October 25. The BSE said that the move would help in efficient and transparent price discovery of the yellow metal. In February this year, the exchange received an in-principle nod from (SEBI) after it conducted several mock trading in the test environment for its members to facilitate trading in EGRs. 

It introduced two new products of 995 and 999 purity during the Muhurat trading on Diwali. These are now traded in multiples of 1 gram and deliveries in multiples of 10 gram and 100 gram, the exchange had stated in a statement. 

How to Buy EGRs 

EGRs can be bought by using a Demat account just like stocks are bought on BSE. In its statement, BSE said that it would launch different variants and denominations, from 1 gram to 1 kg, so that investors can buy as per their budget. Like shares, EGRs will be held in a Demat form and can be converted into physical gold when needed, the BSE said. 

During the launch of the concept, Sebi said the gold exchanges will offer the facility to convert gold into EGRs, trading in EGRs and reconvert EGRs back to gold. For this purpose, the exchange will work closely with vault service providers (VSP). 

So, if an investor has bought an EGR from BSE and a vault manager holds that EGR, while selling it off, the investor can go to him or other empanelled vault managers to exchange the EGR for physical gold. 

“The trading will be done in three tranches that include conversion from physical gold to EGRs, trading of EGRs, and again conversion of EGR back to physical gold,” the BSE said in a document.