Moving a step closer towards setting up a spot gold exchange, a steering committee of industry bodies has defined the structural framework for the exchange. A blueprint submitted by them defines the membership structure, product specifications, operating model, liquidity and incentives needed for setting up the exchange.

After reviewing standards at global gold spot exchanges and Indian exchanges, the committee suggested that the exchange should have a tiered and flexible membership structure, with members meeting a minimum net worth requirement.

Product specifications should be broad enough to appeal to a range of customers but narrow enough to promote liquidity. It suggested an initial spot contract with a T+1 settlement period, a small selection of contract sizes and fineness, which includes 1 kg of 995 fineness, 100 grams of 999 fineness, 10 grams of 999 fineness . The minimum delivery size is to be 1 kg for the kilobar contract and 100 grams for the 100 grams and 10 grams contracts.

The operating model should be efficient and help build liquidity and attract onboard market-makers to the exchange. Trades, against a daily gold reference price, should be executed through gold deposit receipts, maintained by depositories. A central counterparty should stand behind clearing and settlement. The committee recommended a combination of cash and gold clearing model.

Banks and vault operators should play a pivotal role within the market and delivery locations should be established across India, for both buyers and sellers. Bullion traders and banks will help drive liquidity, acting as both market-makers and broker/participants. The exchange needs a clearly defined regulatory architecture, with oversight by a central regulator.

“The exchange will help establish India’s position as a global gold trading hub. As always, in a large country, a nationwide solution brings with it some challenges, and perhaps even alternative approaches, but with this blueprint, we hope that the industry can move forward together to the next phase of setting up the Gold Spot Exchange,” said Somasundaram P R, Managing Director of the World Gold Council India.

The committee was represented by the World Gold Council, Indian Bullion and Jewellers Association, Gem and Jewellery Export Promotion Council, All-India Gems and Jewellery Domestic Council, Bullion Federation of India and the Indian Bullion Banking Association.