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BSE plans gold futures, spot trade at GIFT City

Dilip Kumar Jha/Mumbai 17 Mar 17 | 12:49 AM

The BSE, Asia’s oldest  exchange, plans to offer futures trading in gold and currencies at its wholly-owned subsidiary at the International Financial Services Centre (IFSC) in the Gujarat International Financial Tech (GIFT) City, close to Ahmedabad.

BSE’s subsidiary, India International Exchange (INX), commenced operating on January 16, with futures trading in equity and interest rates.

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“We have applied to Sebi (the markets regulator) to launch futures trading in gold and currencies," said Ashishkumar Chauhan, managing director (MD) of BSE, at a conference organised here by Indian Bullion and Jewellers Association (Ibja). “We will soon apply for approval to launch spot trade in bullion, including gold and silver, at INX. We will also seek approval on relaxation in the gold trading norms from the GIFT City board, if the need arises."

The idea for such a spot exchange came last year from Shaktikanta Das, secretary, department of economic affairs. BSE had then signed an agreement with Ibja for a joint venture in the exchange. No progress was made thereafter, perhaps due to the several approvals required from government and regulatory authorities, besides jurisdiction over regulating of spot trades, a state subject.

BSE says its role in a spot exchange is as a technology provider. “Jewellers and bullion dealers need to come forward to take interest," said Chauhan.

Mohit Kamboj, former president of Ibja, has proposed to start with a company fully demutualised, with participation from jewellers and bullion dealers, to commence spot trading in gold from April 1. “The government is not going to set up an exchange, which the industry needs to do. We will be able to show the government some active interest, which would later follow with trading norms and guidelines," said Kamboj.

Prithviraj Kothari, MD of RiddiSiddhi Bullions, said: “Investment is not an issue for setting up an exchange. We are ready to invest any amount needed for operationalising the spot exchange. But, the government or its nominated agencies need to sell imported gold only through the bullion exchange to make the venture viable."

He says the bullion exchange in Turkey is successful only because of the government’s selling of imported gold through it. A similar exchange in Shanghai is successful because it offers exchange rate arbitrage. Thus, state or nominated agencies need to distribute gold only through the proposed exchange, he feels.

At Thursday's event, Aram Shishmanian, chief executive of the World Gold Council (WGC), said: “India imports around a quarter of global gold production but has no say in the global price. There are two basic needs India can emphasise on to achieve this, as London is no longer going to remain the sole market for global gold trade – purity and transparency. India’s spot gold price discovery is opaque. As the trade is shifting from the west to the east, India cannot remain silent any longer."

India’s gold demand was estimated by the WGC at 675.6 tonnes for calendar year 2016, about a fifth less than the 857.2 tonnes for calendar 2015.

Focus on GIFT City:

* BSE mulls spot gold trading facility at INX, Gift City 

* It will soon seek approval of the government and the Gift City regulator 

* So far, the exchange has launched equity futures  

* Plans underway for spot bullion exchange, to form a company soon 

* Delivery-based equity trading by listing foreign companies’ shares on exchange at GIFT will start once other infrastructure is in place 

* NSE has also moved ahead by forming a company to launch trading at the Gift City 

* MCX has signed an MoU with CME to work together at the GIFT exchange 

* NCDEX has also expressed its intention to have trading there 

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