Sebi plans norms for digital gold trades | Economic Times

Mumbai: The Securities and Exchange Board of India (Sebi) plans to regulate online trades in digital gold now sold by various fintech firms and brokerages, two people with direct knowledge of the matter told ET. The capital-markets watchdog is seeking to fill the regulatory vacuum in an asset class that’s becoming increasingly popular with new-age investors. Sebi plans to create a new framework through which registered brokers and market intermediaries will be allowed to sell digital gold on a proposed spot exchange. In May, Sebi had issued a consultation paper on the proposed exchange for trading in digital gold, and final regulations should be published soon.ET’s mailed queries to Sebi remained unanswered.“The quality of gold being offered may not be the problem but lack of any regulatory oversight on entities selling this digital gold is certainly a red flag,” said a senior market participant. “These digital platforms are saying that they are mere aggregators; so if something goes wrong, there will be serious accountability questions.”85854437To be sure, the proposed Sebi rules will immediately apply to entities that are Sebi registered, such as stock brokerages or investment advisors. Parliamentary legislation may be needed to empower Sebi to widen its regulatory scope.“If Sebi has to regulate the whole digital gold sector and cover all the entities, the powers have to be designated to the regulator by an act of Parliament,” said a member of the secondary-market advisory committee at Sebi. The member declined to be named.In August, Indian stock exchanges asked Sebi-registered entities, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10. This circular was issued after Sebi raised concerns over brokerages selling digital gold through their platforms. The two executives cited above said this Sebi order was to align market intermediaries with the new spot exchange rules for online gold trades. “Right now, digital gold products don’t have any settlement guarantee or standard rules. Some of the platforms are even allowing fractional ownership in digital gold,” the advisory panel member cited above said.Digital gold is a big hit among new-age investors. All leading fintech apps and some of India’s biggest brokerages also offer these products alongside equities on their platforms.ET had reported on August 24 that both new-age fintech intermediaries, such as Upstox, Groww and Paytm Money, and traditional brokers, such as HDFC Securities and Motilal Oswal, offer customers an option to invest in digital gold. These platforms have tied up with gold firms, such as Augmont Gold, MMTC-PAMP India and Digital Gold India, for this purpose.The business model involves customers being allowed to buy gold for as low as one rupee, as a digital asset. Gold companies then store an equivalent amount of the metal in their lockers, against a virtual certificate of purchase. Various industry estimates suggest that the digital gold market clocks Rs 5,000 crore worth of sales annually. About 5-6 million individuals are estimated to have exposure to this asset class.Sebi’s involvement as a regulator should enhance investor confidence in this asset class, said market participants. In the past, there have been several black-swan events in the Indian commodity markets. In 2013, for instance, there was a major payment default at the National Spot Exchange, affecting more than 10,000 commodity investors.