Operating Guidelines on Bullion Exchange, Bullion Clearing Corporation, Bullion Depository & Vault Manager

Page 1 of 59 CIRCULAR F. No. 415/IFSCA/Consolidated Operating Guidelines/2021-22 August 25, 2021 To, Bullion Exchange, Bullion Clearing Corporation, Bullion Depositories, and Vault Managers at IFSC All Market Participants Dear Sir/Madam, Sub: Operating Guidelines on Bullion Exchange, Bullion Clearing Corporation, Bullion Depository and Vault Manager This Circular is being issued to enable the Bullion Exchange, Bullion Clearing Corporation, Bullion Depository and Vault Manager in an International Financial Service Centres (IFSC) to operationalise their activities as per the International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020. 2. The Bullion Exchange, Bullion Clearing Corporation, Bullion Depository and the Bullion intermediaries in an IFSC shall comply with the operating guidelines specified in Annexure – I of this Circular. The Vault Manager shall comply with the guidelines specified in Annexure-II of this Circular. 3. This Circular has been issued in exercise of the power conferred under section 12 of the International Financial Services Centres Authority Act, 2019 r/w Regulation 58 of the International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020. 4. A copy of this Circular is available on the website of International Financial Services Centres Authority at www.ifsca.gov.in at “Legal →Circulars”. Yours faithfully, Ramakrishnan Padmanabhan Deputy General Manager Encl: As Above ramakrishnan.pad@ifsca.gov.in Page 2 of 59 Annexure - I I. Operating guidelines for Bullion Exchange 1. General guidelines for the Bullion Exchange: (1) A systems interface shall be developed between the Bullion Exchange, Bullion Clearing Corporation and Bullion Depository. (2) The Bullion Exchange shall have a trading platform that offers trading in products related to bullion. (3) The Bullion Exchange shall have products in Gold, Silver or such other precious metal backed by physical bullion. (4) The Bullion Exchange shall enable trading of bullion through Bullion Depository Receipts (BDRs) issued in electronic form by Bullion Depository. (5) The Bullion Exchange must offer different modes of trading which may include trading driven by quotes, block deals enabled through a separate window on the Bullion Exchange and Benchmark pricing, if any. (6) The trading hours for all products traded on the Bullion Exchange shall be determined by the bullion exchange. (7) The timings and process for determination of daily benchmark price, if any, shall be decided by the Bullion Exchange. The Benchmark price fixing shall be conducted in a transparent manner adhering to the basic principles of price fixing. The Bullion Exchange shall put in place mechanism so that an independent & transparent benchmark may be determined. (8) The Bullion Exchange shall enter into agreements with Bullion Clearing Corporation in case of separate entities for functioning of Exchange and Clearing. In case of Bullion Exchange having the function of a Clearing House there shall be clear ring fencing of the functioning of the Bullion Exchange and its Clearing House. (9) The Bullion Exchange shall enter into agreements with the relevant members viz. Trading Members, Market Making member, Benchmark price fixing members (if any) etc. Page 3 of 59 (10) A member of Bullion Exchange may enter into a tie-up with a clearing member unless clearing trades for itself, and open a bank account with the Banking Unit at an IFSC for the purpose of settlements, margins etc, of its customers. (11) A member of Bullion Exchange shall pay necessary fees, penalties, charges etc. as may be imposed by the Authority and / or Bullion Exchange from time to time. 2. Guidelines for Trading on the Bullion Exchange: (1) The Bullion Exchange shall only enable trading in Bullion which adhere to OECD Due Diligence Guidance for Responsible Supply chain of Minerals from Conflict Affected and High-Risk Areas for establishing supply chain integrity. (2) The Bullion Exchange, on receipt of information pertaining to the creation of Bullion Depository Receipt, shall enable trading of the same. (3) Members: The following are eligible to become members of the Bullion Exchange subject to prior registration with the Authority for the purpose of trading in bullion depository receipts with underlying bullion on the Bullion Exchange: a) Banking Units at IFSC. b) Subsidiaries/Branches of entities dealing with financial products, set up in an IFSC. c) Banks authorized by RBI and Nominated Agencies authorized by Directorate General of Foreign Trade (DGFT) to deal in bullion. (4) Members shall be allowed to undertake Spot Trading of the Bullion Depository Receipts with underlying bullion in the following manner: i. The Bullion Exchange shall enable bullion trading in bullion depository receipts with underlying bullion, in relation to bullion spot delivery contracts which may be traded through order Page 4 of 59 matching, block deals, market making or benchmark price fixing, if any. ii. ‘Bullion Spot Delivery Contract’ shall have the same meaning as assigned to it vide Central Government Notification on financial products and financial services dated 31st August, 2020. iii. In case of bullion contracts where the settlement is likely to be on T+0 basis, the funds are required to be available prior to initiation of the trade by the trading member or its customers. iv. Margin based trading is to be enabled for only those trades where the settlement will be carried out on T+1 or T+2 basis or any other settlement cycle that may be approved by the Authority. v. Types of Spot Trading: a) Order-matching - 1. ‘Order matching’ is a mechanism where the trades are executed based on matching of orders based on price time priority. 2. The initiation of the trade may be done by the Trading member or its customer through an online platform/offline mode that may be provided by the trading member. b) Block Deals- 1. Block deals refer to trading of such quantity of bullion as specified in these Guidelines, at a price negotiated bilaterally through a window enabled by the Bullion Exchange between the trading members. The price in a block trade shall be within +/- 0.5 per cent of the ongoing market price in the Bullion Exchange. 2. The trades in bullion shall only be executed through the platform provided by the Bullion Exchange. 3. Only customers who are not individuals shall be enabled to engage in block deals. Page 5 of 59 4. Each block deal shall be of quantity not less than 100 Kilograms in case of Gold or 3500 Kilograms in case of silver. 5. Every block deal has to be pre-funded, i.e. underlying bullion or equivalent funds for settlement (depending on the side of trade) shall be required to be deposited with the Bullion Clearing Corporation before executing the deal. 6. The Bullion Exchange shall specify the bullion products that can be traded through block deals. 7. The Bullion Exchange shall furnish disclosure of transaction of the block deal providing details such as names of the members and customers (buyer/seller), quantity of bullion bought/sold etc. The Bullion Exchange shall also furnish the block deal related information to the public immediately on its execution. 8. The Block deal transaction shall not be taken into consideration for calculation of the Opening, Closing or the Benchmark Price. 9. The timings and the procedures for execution of the block deals shall be provided by the Bullion Exchange. c) Market Making- 1. Market making refers to the process of providing continuous two-way quotes in bullion contracts at prices as per the terms and conditions prescribed by the Bullion Exchange. 2. The detailed guidelines for Market Making and other obligations shall be provided by the Bullion exchange.