SEBI Moves to Resolve EGR Hurdles as Gold Benchmark Ambitions Take Shape
The Securities and Exchange Board of India (SEBI) has stepped up efforts to address long-standing challenges facing Electronic Gold Receipts (EGRs), signalling a renewed push to establish gold as a credible and transparent price benchmark in India. The initiative is part of a broader regulatory agenda aimed at reviving and deepening India’s commodity markets, both agricultural and non-agricultural.
SEBI Chairman Tuhin Kanta Pandey said the regulator is closely examining structural, operational and regulatory issues that have restricted the adoption of EGRs and limited their effectiveness in price discovery. Speaking at an event organised by the Commodity Participants Association of India (CPAI), Pandey underlined that strengthening the commodities ecosystem remains a top priority for the regulator.
“EGRs have strong conceptual backing, but practical challenges need to be resolved for them to gain wider acceptance and liquidity,” Pandey said, pointing to gaps that have emerged since the framework was introduced.
Why Electronic Gold Receipts Have Struggled to Gain Traction
Electronic Gold Receipts are designed to convert physical gold into an electronic form, enabling transparent and standardised trading on exchanges. While the framework was expected to modernise India’s fragmented gold market, actual market participation has remained limited.
One of the key issues under review is the impact of Goods and Services Tax (GST) on EGR transactions. Market participants have flagged GST-related complexities as a friction point that discourages liquidity and wider adoption.
SEBI officials believe that resolving these concerns is critical if EGRs are to play a meaningful role in domestic gold price discovery and compete with international benchmarks.
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Regulatory Framework Is in Place, But Adoption Lags
The legal foundation for EGRs was laid in December 2021, when the government recognised them as securities. SEBI subsequently operationalised the gold exchange ecosystem through a detailed circular issued on January 10, 2022.
The framework covers multiple aspects, including:
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Vaulting and storage standards
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Creation and redemption of EGRs
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Roles of intermediaries such as depositories and vault managers
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Risk management and settlement norms
Despite this comprehensive structure, SEBI acknowledged that market traction has not matched expectations, prompting a reassessment of practical impediments.
“Regulation alone cannot drive markets; participation and confidence are equally important,” a senior market participant noted, reflecting the broader sentiment within the commodities ecosystem.
Commodity Market Revival Tops SEBI’s Reform Agenda
Beyond EGRs, SEBI has reiterated its commitment to reviving and expanding India’s commodity derivatives markets. The regulator has constituted two dedicated working groups to examine long-standing challenges across segments.
Key focus areas include:
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Issues faced by exchanges, brokers and intermediaries
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Concerns raised by Farmer-Producer Organizations (FPOs)
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Possible easing of restrictions in agricultural commodity derivatives
The working groups are expected to submit data-driven recommendations aimed at improving liquidity, participation and risk management.
Stakeholder Consultations Shape Policy Direction
SEBI has also intensified engagement with industry stakeholders to ensure reforms are grounded in market realities. In July, the regulator held extensive consultations with exchanges, clearing corporations, brokers, FPOs, domain experts and industry associations.
These discussions focused on identifying operational bottlenecks and policy changes required to deepen commodity derivatives markets and make them more resilient.
According to officials, feedback from these consultations is playing a key role in shaping SEBI’s next phase of reforms.
Opening Doors to Institutional and Foreign Participation
A major pillar of SEBI’s strategy involves broadening participation in commodity markets. The regulator is pushing for the entry of banks and insurance companies into commodity derivatives to enhance institutional hedging and liquidity. Discussions on this front are currently underway with the Reserve Bank of India (RBI).
In parallel, SEBI is examining the possibility of allowing foreign portfolio investors (FPIs) to participate in non-cash-settled, non-agricultural commodity derivative contracts. Market experts believe this could significantly improve price discovery and align Indian commodity markets more closely with global benchmarks.
“These measures are aimed at creating depth and balance in commodity markets, without compromising on risk controls,” Pandey said.
Investor Protection Reforms Also Under Review
SEBI is also looking at harmonising investor protection mechanisms across market segments. The regulator is examining the merger of equity and commodity Investor Protection Funds (IPFs) to streamline governance and utilisation.
In a consultation paper, SEBI proposed that exchanges maintain a single IPF covering both equity and commodity segments, while ensuring adequate safeguards for commodity-specific risks. For exchanges predominantly focused on commodity derivatives, equivalent fund requirements would be maintained.
The proposal aims to bring consistency in contributions, deployment and oversight, while strengthening investor confidence.
What This Means for Gold and Commodity Investors
For gold investors, a functional EGR ecosystem could offer transparent pricing, lower transaction friction and reduced reliance on physical markets. For the broader commodities ecosystem, SEBI’s reform push signals a clear intent to revive trading volumes, improve hedging tools and attract long-term institutional capital.
As one commodities analyst put it, “If EGRs succeed, they can fundamentally change how gold is priced and traded in India.”
While challenges remain, SEBI’s renewed focus suggests that gold and commodities are moving back into the regulatory spotlight—potentially reshaping India’s price discovery mechanisms in the years ahead.
