India is set to get its first international bullion exchange on Friday.
Prime Minister Narendra Modi will launch the India International Bullion Exchange (IIBX) at Gujarat International Finance Tec-City (GIFT City) as well as lay the foundation stone of the unified regulator International Financial Services Centres Authority’s headquarters building.
GIFT City is India’s maiden International Financial Services Centre (IFSC).
As per the International Financial Services Centres Authority (IFSCA), the India International Bullion Exchange will facilitate efficient price discovery with the assurance of responsible sourcing and quality, apart from giving impetus to the financialisation of gold in India.
“This shall empower India to gain its rightful place in the global bullion market and serve the global value chain with integrity and quality. This also re-enforces the commitment of the Government of India towards enabling India to be able to influence global bullion prices as a principal consumer,” the statement read.
But what is an international bullion exchange? Who can trade on it? Let’s take a closer look:
First, it is important to understand what bullion is and what a bullion market is.
Bullion refers to physical gold and silver of high purity often kept in the form of bars, ingots, or coins. It can be considered legal tender and is often held as reserves by central banks or held by institutional investors.
A bullion exchange allows buyers and sellers to trade gold and silver as well as associated derivatives.
Though there are several bullion markets around the world, the London Bullion Market, which allows trading 24 hours a day and facilitates futures and options trading, is the primary global market trading platform for gold and silver.
These bullion markets are typically over-the-counter (OTC) markets, that is to say, they deal in physical gold and silver.
What about the IIBX?
The National Stock Exchange, Multi Commodity Exchange, India INX International Exchange, National Securities Depository and Central Depository Services Ltd have joined hands to establish the holding company India International Bullion Holding IFSC, which will operate the International Bullion Exchange.
As per Indian Express, the IIBX, announced in the 2020 Union Budget, has enrolled jewellers to trade on the exchange and set up the infrastructure to store physical gold and silver.
As per Hindu Business Line, 56 qualified jewellers have been approved by the IFSC regulator IFSCA to import bullion and transact on the exchange.
To become a qualified jeweller, you must have a minimum net worth of Rs 25 crore and 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals, as per Indian Express.
As per The Times of India, the exchange will have three vaults – one operated by Sequel Global (ready and approved), the second one to be operated by Brinks India is ready and awaiting final approval and the third under construction.
How will it work?
Once gold is imported, it will be stored at the IFSC Authority-approved vault.
Following this, a bullion depository receipt will be made and the gold will be ready for trading, a source told the newspaper.
Being a spot exchange, all the open positions will be marked for delivery at the end of the day, as per Hindu Business Line.
The initial pilot trading at the exchange with small transactions in last few months has been successful, sources told the Hindu Business Line.
What are the advantages?
As per Indian Express, the IIBX will be a gateway for bullion imports into India, where all bullion imports for domestic consumption shall be channelised through the exchange.
In addition to providing a trading avenue to various participants, a bullion exchange will also offer the advantages of price discovery, transparency in disclosures, guaranteed centralised clearing and assurance of quality.
A bullion exchange, apart from providing standardisation and transparent mechanism, will also be an important step towards financialisation of bullion-based products, as per the report.
The IFSCA has ensured sourcing integrity of the bullion delivered through IIBX by mandating compliance to Organisation for Economic Cooperation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the newspaper added.
“This will lead to quality assurance and sourcing integrity. With the regulatory foundations in place, IFSCA intends to nurture a bullion ecosystem aimed at positioning India in the international markets, initially as a price influencer and ultimately as a price setter,” an official from IFSCA told Indian Express.
The Times of India quoted IIBX CEO and MD Ashok Gautam as saying: "The thought process behind setting this up to enable trading of commodities on an exchange. Since this is an international exchange, trading can take place in US dollars as well. We position ourselves as one of the biggest trading hubs in Asia. Because of the competitive pricing on IIBX, international players will be happy to use our vaulting services. Moreover, with this being a free trade zone, no duty will be paid.”
Speaking to Hindu Business Line, Naveen Mathur, director (Commodities and Currencies), Anand Rathi Shares and Stock Brokers, said the spot exchange at IFSC will not have any impact on gold futures as it is a tool for hedging while the spot exchange will be used by the industry for sourcing the yellow metal.
PM to launch NSE IFSC-SGX Connect
The prime minister will also launch NSE IFSC-SGX Connect. Under this system, all orders on Nifty derivatives placed by members of Singapore Exchange Limited (SGX) will be routed to and matched on the NSE-IFSC order matching and trading platform.
The connect platform will deepen liquidity in derivative markets at GIFT-IFSC.
Brokers and dealers from India and across international jurisdictions are expected to participate in large numbers for trading derivatives through the connect.
Several key announcements will also be made during the visit of the prime minister, the statement said.
Chief Minister of Gujarat Bhupendra Patel, Union Minister of Home Affairs and Co-operation Amit Shah, Union Minister of Finance and Corporate Affairs Nirmala Sitharaman, Union Ministers of State for Finance Pankaj Chaudhary and Bhagwat Kishanrao Karad will be attending the events.
With inputs from agencies
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