Sebi’s social message and precious metals

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With an objective to enhance the depth of the financial markets, market regulator Securities and Exchange Board of India (Sebi) on September 28 cleared frameworks for gold exchange and social stock exchange (SSE) for fundraising by social enterprises. It also approved amendments to norms to enable the introduction of Silver Exchange Traded Fund with certain safeguards in line with the existing regulatory mechanism for Gold ETFs.

We believe that the introduction of a nationwide Gold Spot Exchange will help in proper price discovery. At present, prices of spot gold vary from state to state while GST rates remain the same. It is also to be noted that the physical movement of gold is a risky affair and delivery of e-gold or in demat form is not very popular in India till now. Gold is currently traded only as a derivative instrument on all major bourses including MCX. In such bourses, the percentage of physical delivery of gold (in electronic form) is virtually nil.

The announcement of launching silver ETFs will make investing in white metal truly accessible. Investors who are tired of the complexities of futures contracts and the dangers associated with them could find this mode more comfortable. Now investors will not worry about its purity or theft, unlike a case for the physical holding of silver, as the underlying asset will be managed by the professional vault managers.

Lastly, SSE will help social enterprises to raise funds. This will be a separate segment of the existing stock exchanges. It is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them. Social enterprises eligible to participate in the SSE should be entities – non-profit organisations and for-profit social enterprises — having social intent and impact as their primary goal. The move may help NGOs to get listed on the bourses.