The Finance Ministry has cleared the legal decks for bullion depository receipts (BDR) with underlying bullion and bullion spot delivery contract to be issued and traded in International financial service centres (IFSC) such as GIFT-City, Gujarat.

It has specified these two financial products (instruments) — BDR and bullion spot delivery contract — as “securities” under the Securities Contracts (Regulation) Act, 1956, a must for financial products to be traded in an exchange.

First time ever

Industry observers noted that this is a transformative move for India as BDR is actually gold and this is the first time ever that spot trading on gold has been given the status of “securities”. One cannot trade a spot contract without a BDR and that is why both have been notified together as “securities”.

The entire regulatory framework for trading has now been formed, which will help people deal in this as “securities” while fully backed by gold.

The move has cleared the decks for the India International Bullion Exchange (IIBX) at GIFT-City in Gujarat to launch its operations, said exchange industry players and GIFT-City observers.

Prime Minister Narendra Modi is likely to inaugurate the IIBX — India’s first and only international bullion exchange — at the upcoming Vibrant Gujarat event on January 10-11, 2022, sources said.

The actual trading operations at IIBX may start after Makarshankranti (January 14).

V Balasubramaniam, MD & CEO of India INX, told BusinessLine that the move to allow BDR and ‘bullion spot delivery contract’ to be issued and traded in an international financial services centre will pave the way for the depository in IFSC to start issuing BDRs against bullion deposits kept in the vaults situated in free trade and warehousing zones.

Trading hub

Somasundaram PR, Regional CEO – India, World Gold Council, said it is a welcome move to have BDR and bullion spot delivery contract notified together as “securities” and will prepare India to start international bullion exchange operations. “The idea of an international bullion exchange has a far larger purpose than merely channelising imports. It would help India become a trading hub for gold which would have a meaningful role in the global markets that sets the price,” he added.

It maybe recalled that the NSE, MCX, India INX International Exchange, NSDL and CDSL had formed a holding company — India International Bullion Holding IFSC — for setting up International Bullion Exchange, Bullion Clearing Corporation and a Bullion Depository in the IFSC GIFT-City.

In August last year, the Centre had allowed GIFT-City regulator International Financial Services Centre Authority (IFSCA) to regulate these two financial products — billion spot delivery contracts and BDR. IFSCA had, in December last year, notified regulations for setting up of bullion exchange including that of Clearing Corporation, Depository and Vaults.