Sebi comes out with operating guidelines for depositories, vault managers

New Delhi: Capital markets regulator Sebi on Monday came out with standard operating guidelines for the depositories and vault managers in respect of electronic gold receipts (EGR).

Vault manager will be registered and regulated as a Sebi intermediary for providing vaulting services meant for gold deposited to create EGRs. The vault managers are mandated for creation and extinguishment of EGRs.

The depositories will create and manage a common interface accessible to all the stakeholders in the gold exchange ecosystem -- vault managers, depositories, stock exchanges, clearing corporations and clients/investors.

In a circular, Sebi said that vault manager will have to furnish financial security depository of Rs 10 lakh to any one of the two depositories --NSDL or CDSL- before obtaining a certificate of registration from the markets regulator.

This is the minimum amount which has to be maintained with depository at all points of time.

Sebi asked depository to put in place a procedure to utilise the FSD for compensating the aggrieved client, in certain situations including any loss caused to a client that have been appropriately established by the depository against the vault manager.

The settlement of claims will be done by the depositories on a pro-rata basis.

Sebi said the depository and the vault manager will devise procedures for carrying out reconciliation between the stock of physical gold deposited with the recognized vaults and the corresponding electronic record of EGRs in the depository system.

The reconciliation should be done at the end of the day on a daily basis.

In case the reconciliation is not confirmed by the recognized vault at the end of day, the depository will not allow requests for fresh deposits into or withdrawal from the concerned vault.

The depositories, in coordination with each other, will ensure that physical verification of the gold stored in recognized vaults belonging to the vault manager, is carried out at least once in a fortnight.

Further, full inspection of the vault manager and its recognized vaults will be carried out by the depositories on an annual basis.

In addition, Sebi has put in place procedure for ensuring safety of the gold from fire, theft and burglary among others.

In case of loss or damage of the gold either due to unavoidable circumstances or otherwise, such as negligence of the vault manager, the regulator said that vault manager will be liable to indemnify for the loss/damage.

The vault manager will designate one of its employees as a compliance officer who would be responsible for monitoring the compliance with relevant rules.

The officer would also be responsible for ensuring that all applicable norms are followed by the vault manager and should issue a declaration to that effect to the depository for every quarter, within seven working days from the end of the quarter.

The vault managers are required to have systems for recording all transactions in electronic form pertaining to vaulting services.

They need to maintain the documents to ensure that gold is traceable; details of storage, transfer and withdrawal of gold; purity, quantity and weight of deposited gold; and creation and extinguishment of EGRs. Further, they need to preserve these records and documents for a minimum period of five years.

Also, Sebi said depositories will provide interface to the vault managers, registered with the regulator, by entering into an agreement with them defining their rights and obligations.

The interface will be accessed by the vault managers for creation and extinguishment of EGR, reconciliation of records and other related activities as defined by the depository.

With respect to cut-off time, Sebi said vault manager will accept deposit of gold as withdrawal of the yellow metal from 10 am to 3 pm.

For all the gold deposited till 3 pm, EGR will be created on the same working day but made available for trading by the investor on the start of the next trading day. For the gold deposited after 3 pm, EGR will be made available for trading on the second working day of such deposit.

This comes after Sebi notified rules for vault managers in December 2021 and came out with framework for operationalising the gold exchange, wherein the yellow metal will be traded in the form of EGRs, in January 2022.

Under the rules, 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.