EGR refers to Electronic Gold Receipts issued in exchange for physical gold to facilitate the trading of the noble metal. The introduction of EGR allows trading of gold and conversion of physical gold to EGR and vice versa in contrast to gold derivates and gold ETFs, which is a passive mode of investment in gold.
SEBI (Vault Managers) Regulations, 2021. The Government of India has notified ‘Electronic Gold Receipts (EGPR)’ as ‘securities’ under the Securities Contracts (Regulation) Act 1956, vide its notification dated 24th December 2021, paving the way for operationalization of Gold Exchange and availing of all the benefits as any other securities, i.e., trading, clearing and settlement features.
- Facilitates trading, clearing, and settlement of EGR akin to any other securities allowing transparency, investment liquidity, and perpetual validity.
- It assures the quality of gold.
- It is expected to be a bridge in integrating spot gold trade with the derivatives markets.
- After implementing this trading system, India is expected to fix the gold rates in the country rather than depending on global rates. Currently, Indian gold rates are dependent on the international gold price.
- It shall also contribute to schemes such as Gold Monetization Scheme (GMS), gold bonds, and gold deposits ecosystem.
- It is likely to be beneficial for various market players like Foreign Portfolio Investors, Jewellers, Banks, Retail Investors, Bullion Dealers to trade freely on the exchange.
Pursuant to the functioning of the above framework, SEBI has released guidelines relating to trading features about the EGPR segment vide circular dated 14th February 2022.
1. Trading Hours
- Trading in the EGR segment shall be permitted from Monday to Friday.
- Stock exchanges can set their trading hours within the time limit of 9:00 AM to 11:30 PM / 11:55 PM (as per US daylight savings in Spring/ Fall Season).
- Stock exchanges shall ensure the necessary risk management system and infrastructure commensurate to their trading hours.
2. The Duration
- The pre-open session shall be for 15 minutes i.e., from 8:45 AM to 9:00 AM, out of which 8 minutes shall be allowed for order entry, order modification and order cancellation, 4 minutes for order matching and trade confirmation and the remaining 3 minutes shall be the buffer period to facilitate the transition from pre-open session to the normal market.
3. Reference Price
- Only for the first day of trading of EGRs, the stock exchanges shall discover and disclose a reference price for EGRs in the pre-open session. This reference price would be discovered using the ‘spot price polling mechanism’.
- Suppose EGRs are already trading on any other stock exchange. In that case, the reference price during the pre-open session on the first day of trading of EGRs on such exchange, which is launching trading in EGRs for the first time, shall be the closing price of the previous day’s EGR on any other exchange where EGRs are trading.
4. Price Limit
- A Price range of +/- 5% from the reference price shall be applicable on EGRs during the pre-open session.
5. Types of Order
- Limit orders and Market orders shall be entered during the pre-open session.
6. Equilibrium Price
- Both Limit orders and Market orders shall be reckoned for computation of equilibrium price. No iceberg order will be allowed, i.e., orders shall be disclosed in total quantity.
- The equilibrium price shall be the price at which the maximum volume is executable. In case more than one price meets the said criteria, the equilibrium price shall be the price at which there is minimum order imbalance quantity (unmatched order quantity).
7. Risk Management
- The current risk management system for the EGR segment shall apply to the pre-open session.
- Considering EGR is a new security class, and it may take time to build liquidity in this segment, it has been decided to allow one block deal window. The window shall operate between 03:05 PM to 3:20 PM.
9. Price Limit-
- The orders placed shall be within ±1% of the reference price.
10. Minimum order size-
- The minimum order size for executing trades shall be Rs.10 Crore.
- Every trade executed in the block deal window must result in delivery and shall not be squared off or reversed.
- The brokers shall disclose to the stock exchange the name of the contract, the client’s name, the quantity of EGR/s bought/sold and the traded price. The brokers shall make the disclosure immediately upon execution of the trade.