Sebi expands bullion vaulting framework to ETFs, derivatives; vault manager net worth raised
Sebi expanded its vault managers framework beyond Electronic Gold Receipts to cover bullion underlying specified ETFs and derivatives, while raising vault managers’ net-worth requirement to Rs 75 crore and strengthening security, segregation, comp...
By Kumar Gaurav, ETMarkets.com |
Reuters
Sebi broadened bullion vaulting rules to cover ETFs and derivatives, raising net-worth requirements while strengthening safeguards for storage, security, segregation and compliance.
The Securities and Exchange Board of India (Sebi) on Thursday approved amendments to its Vault Managers Regulations, 2021, expanding the regulatory framework for vaulting services beyond Electronic Gold Receipts (EGRs) to cover bullion underlying Sebi-specified bullion-related instruments, including exchange-traded funds (ETFs) and derivatives on bullion.
The amendments seek to expand and harmonise the regulatory framework governing vault managers and vaulting services for bullion underlying different Sebi-specified bullion-related instruments, according to its latest circular.
Sebi said the existing regulations, introduced to establish a framework for vault managers providing vaulting services for gold underlying EGRs, were reviewed as the Indian bullion market evolves with the growth of instruments such as gold and silver ETFs and bullion derivatives.
"The review was also aimed at strengthening extant norms including storage and safekeeping of bullion, segregation, reconciliation, security, insurance, governance etc.," Sebi said.
Vault manager framework expanded
Under the amendments, the scope of the Vault Managers Regulations will be expanded beyond EGRs to cover vaulting services for bullion underlying Sebi-specified bullion-related instruments, including ETFs and derivatives on bullion.
The EGR-specific chapter will be replaced with a product-neutral framework covering all "Bullion related instruments". Sebi will also introduce definitions for "Bullion" and "Bullion related instruments".
The term "Gold Standards", which was specific to EGRs, will be replaced with "Bullion Delivery Standards", extending delivery standards to bullion underlying all Sebi-specified bullion-related instruments.
Vault managers' net-worth requirement raised
Sebi has raised the net-worth requirement for vault managers from ₹50 crore to ₹75 crore.
The regulator has also strengthened security requirements to address risks including theft, burglary, fire, fraud, terrorism and cyber-attacks. The risks covered under requirements for security policies and procedures for dealing with losses will also be aligned.
ALSO READ: Sebi board approves FPI play in non-agri commodity derivatives, expands scope of PMS
Segregation, compliance requirements
The revised framework will expand business-wise segregation requirements to cover vaulting services for all Sebi-specified bullion-related instruments.
Additional provisions will require instrument-wise and entity-wise segregation of bullion stored by vault managers.
Sebi will also require vault managers to appoint a compliance officer and specify the broad duties of the officer.
Harmonised framework for bullion-related instruments
Sebi said the amendments would establish a harmonised and scalable regulatory framework for vaulting services across different specified bullion-related instruments.
"The review will establish a harmonised and scalable regulatory framework for vaulting services across different Sebi specified bullion related instruments, reducing regulatory fragmentation and providing consistent standards for the custody and safekeeping of bullion," the regulator said.
The strengthened framework is expected to enhance investor protection and confidence through improved safeguards relating to the storage and safekeeping of bullion, security, segregation, traceability and reconciliation, along with enhanced financial and insurance safeguards and stronger governance and risk-management requirements.
"The framework will also facilitate the orderly development of the bullion market and support the growth of bullion related instruments while ensuring robust regulatory oversight of the bullion underlying such instruments," Sebi said.
Consequential circular
A consequential circular will be issued to operationalise the amended regulatory framework. It will cover requirements relating to storage and safekeeping, quality standards, reconciliation, inspection, audit, insurance, security and infrastructure requirements, risk management and grievance redressal for vault managers providing services for EGRs and other Sebi-specified bullion-related instruments.
Other key Sebi decisions
Sebi also approved participation by foreign portfolio investors (FPIs) in specified exchange-traded commodity derivatives, including non-agricultural index derivatives and non-cash-settled non-agricultural commodity derivatives.
For non-cash-settled non-agricultural commodity derivatives, FPI participation will be subject to safeguards to ensure that investors exit their positions before the delivery obligation arises. FPIs will be required to exit their positions before the Tender Period, which begins three days before the expiry of the contract, and will not be permitted to increase their positions from T-3 day.
The regulator also approved enabling provisions for the issuance of depository receipts on units of REITs and InvITs. The framework will initially envisage the issuance and listing of such depository receipts in the International Financial Services Centre (IFSC) in India. Foreign investors, including NRIs, will be permitted to invest in such depository receipts.
Sebi also changed the threshold for unitholder approval of certain REIT and InvIT matters to 75% of total votes cast, from 75% of all outstanding units.
Separately, entities proposing to list non-convertible debt securities will no longer be required to list all outstanding unlisted NCDs. The requirement will apply only to prospective issuances of non-convertible debt securities.
The board also approved a common advertisement code for specified Sebi-regulated entities, including stock brokers, depository participants, investment advisers, research analysts, online bond platform providers, portfolio managers and mutual funds/asset management companies.
For portfolio managers, Sebi approved a new regulatory framework permitting investment in IPOs and primary debt-market issuances, investment-grade unlisted debt securities subject to specified conditions, foreign securities and exchange-traded derivatives, among other measures. The framework also introduces a Portfolio Managers Route for Investing in Mutual Fund units (PRIM) and a framework for Independent Fund Managers.
Disclosure: This article has been written by Kumar Gaurav, who is not a SEBI-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here
The amendments seek to expand and harmonise the regulatory framework governing vault managers and vaulting services for bullion underlying different Sebi-specified bullion-related instruments, according to its latest circular.
Sebi said the existing regulations, introduced to establish a framework for vault managers providing vaulting services for gold underlying EGRs, were reviewed as the Indian bullion market evolves with the growth of instruments such as gold and silver ETFs and bullion derivatives.
"The review was also aimed at strengthening extant norms including storage and safekeeping of bullion, segregation, reconciliation, security, insurance, governance etc.," Sebi said.
Vault manager framework expanded
Under the amendments, the scope of the Vault Managers Regulations will be expanded beyond EGRs to cover vaulting services for bullion underlying Sebi-specified bullion-related instruments, including ETFs and derivatives on bullion.
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The EGR-specific chapter will be replaced with a product-neutral framework covering all "Bullion related instruments". Sebi will also introduce definitions for "Bullion" and "Bullion related instruments".
The term "Gold Standards", which was specific to EGRs, will be replaced with "Bullion Delivery Standards", extending delivery standards to bullion underlying all Sebi-specified bullion-related instruments.
Vault managers' net-worth requirement raised
Sebi has raised the net-worth requirement for vault managers from ₹50 crore to ₹75 crore.
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The regulator has also strengthened security requirements to address risks including theft, burglary, fire, fraud, terrorism and cyber-attacks. The risks covered under requirements for security policies and procedures for dealing with losses will also be aligned.
ALSO READ: Sebi board approves FPI play in non-agri commodity derivatives, expands scope of PMS
ADVERTISEMENT
Segregation, compliance requirements
The revised framework will expand business-wise segregation requirements to cover vaulting services for all Sebi-specified bullion-related instruments.
Additional provisions will require instrument-wise and entity-wise segregation of bullion stored by vault managers.
Sebi will also require vault managers to appoint a compliance officer and specify the broad duties of the officer.
Harmonised framework for bullion-related instruments
Sebi said the amendments would establish a harmonised and scalable regulatory framework for vaulting services across different specified bullion-related instruments.
"The review will establish a harmonised and scalable regulatory framework for vaulting services across different Sebi specified bullion related instruments, reducing regulatory fragmentation and providing consistent standards for the custody and safekeeping of bullion," the regulator said.
The strengthened framework is expected to enhance investor protection and confidence through improved safeguards relating to the storage and safekeeping of bullion, security, segregation, traceability and reconciliation, along with enhanced financial and insurance safeguards and stronger governance and risk-management requirements.
"The framework will also facilitate the orderly development of the bullion market and support the growth of bullion related instruments while ensuring robust regulatory oversight of the bullion underlying such instruments," Sebi said.
Consequential circular
A consequential circular will be issued to operationalise the amended regulatory framework. It will cover requirements relating to storage and safekeeping, quality standards, reconciliation, inspection, audit, insurance, security and infrastructure requirements, risk management and grievance redressal for vault managers providing services for EGRs and other Sebi-specified bullion-related instruments.
Other key Sebi decisions
Sebi also approved participation by foreign portfolio investors (FPIs) in specified exchange-traded commodity derivatives, including non-agricultural index derivatives and non-cash-settled non-agricultural commodity derivatives.
For non-cash-settled non-agricultural commodity derivatives, FPI participation will be subject to safeguards to ensure that investors exit their positions before the delivery obligation arises. FPIs will be required to exit their positions before the Tender Period, which begins three days before the expiry of the contract, and will not be permitted to increase their positions from T-3 day.
The regulator also approved enabling provisions for the issuance of depository receipts on units of REITs and InvITs. The framework will initially envisage the issuance and listing of such depository receipts in the International Financial Services Centre (IFSC) in India. Foreign investors, including NRIs, will be permitted to invest in such depository receipts.
Sebi also changed the threshold for unitholder approval of certain REIT and InvIT matters to 75% of total votes cast, from 75% of all outstanding units.
Separately, entities proposing to list non-convertible debt securities will no longer be required to list all outstanding unlisted NCDs. The requirement will apply only to prospective issuances of non-convertible debt securities.
The board also approved a common advertisement code for specified Sebi-regulated entities, including stock brokers, depository participants, investment advisers, research analysts, online bond platform providers, portfolio managers and mutual funds/asset management companies.
For portfolio managers, Sebi approved a new regulatory framework permitting investment in IPOs and primary debt-market issuances, investment-grade unlisted debt securities subject to specified conditions, foreign securities and exchange-traded derivatives, among other measures. The framework also introduces a Portfolio Managers Route for Investing in Mutual Fund units (PRIM) and a framework for Independent Fund Managers.
Disclosure: This article has been written by Kumar Gaurav, who is not a SEBI-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here
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