Sebi comes out with risk management framework for e-gold receipts

New Delhi: Capital markets regulator Sebi on Monday put in place an elaborate risk management framework for electronic gold receipts.

The watchdog has issued a circular pertaining to Electronic Gold Receipts (EGRs) that covers various aspects, including margin collection, provision of early pay-in of funds for EGR, short-collection or non-collection of client margins, risk reduction mode and settlement.

The circular will come into force with immediate effect.

In December 2021, the government had notified EGRs as 'securities' under the Securities Contracts (Regulation) Act 1956. The same month, Sebi notified rules for vault managers paving the way for operationalising the gold exchange.

Pursuant to the notifications, Sebi issued several frameworks for operationalising the gold exchange, wherein the yellow metal will be traded in the form of EGRs.

The entire transaction has been divided into three tranches -creation of EGR, trading of EGR on stock exchange and conversion of EGR into physical gold.

As per the latest circular, the core of the risk management system is the liquid assets deposited by trading members with the Clearing Corporation (CC).

These liquid assets will cover the requirements -- Mark to Market (MTM) losses (MTM losses on outstanding settlement obligations of the member); Value at Risk (VaR) margins (VaR to cover potential losses for 99.9 per cent of the days); and extreme loss margins (margins to cover the expected loss in situations that lie outside the coverage of the VaR margins).