India Has Setup Its First International Bullion Exchange. Here’s How It Will Work.

India has setup its very first international bullion exchange. Who is permitted to trade on the IIBX, and what goods will be first provided for trading? What benefits does India’s bullion exchange offer? Here’s how it will work.

India To Setup Its First International Bullion Exchange Here's How It Will Work

On July 29, Prime Minister Narendra Modi inaugurated India’s first bullion exchange, the India International Bullion Exchange (IIBX), at GIFT City (Gujarat International Finance Tec-City), India’s first International Financial Services Centre (IFSC), which is situated between Ahmedabad and Gandhinagar.

The bullion exchange, which was mentioned in the 2020 Union Budget, has set up the required infrastructure to hold actual gold and silver in addition to enrolling jewelers to trade on the market.

Who can trade on the IIBX?

Through the IIBX, authorized jewelers will be able to import gold.

Entities must have a minimum net worth of Rs 25 crore and 90% of their average annual turnover in the previous three fiscal years derive from sales of commodities classified as precious metals to qualify as jewelers.

“For the first time in India, since the liberalization of gold imports through nominated banks and agencies in the 1990s, the eligible qualified jewelers in India, as notified by International Financial Services Centres Authority (IFSCA), have been allowed to directly import gold through IIBX. This reform permits direct participation of qualified jewelers on IIBX for the purpose of importing gold,” an official said.

After registration with the IFSCA, non-resident Indians and institutions will be eligible to engage in the exchange in addition to qualifying jewelers. Institutions like Funds for Gold ETF are anticipated to participate in the medium term.

Jewelers will also be able to conduct transactions on the IIBX as either trading members or clients of trading members. A qualified jeweler may open a branch or a subsidiary in an IFSC (international financial services centre) and apply to the IFSCA to become a trading member.

An Indian jeweler who meets the requirements may apply for a limited-purpose trading membership, which allows the entity to only trade for its own account and forbids customer onboarding.

Each month, the IIBX will send a report to the IFSCA with information about bullion transactions made by licensed jewelers, including information about the goods sold, the amount, value, and weight of gold imported, among other things.

How many jewellers have so far registered on the exchange?

There are now 56 jewelers listed on the IIBX. Malabar Gold Pvt Ltd, Titan Company Ltd, Bangalore Refinery Pvt Ltd, RBZ Jewellers Pvt Ltd, Zaveri and Company Pvt Ltd, and Sanghi Jewellers Pvt Ltd are just a few examples of the companies that fall under this category. At the IIBX, trial import transactions are currently being conducted.

Will precious metals like gold be physically transported to GIFT?

The GIFT City will have a total storage capacity of about 125 tonnes of gold and 1,000 tonnes of silver. Presently, vaulting facilities have been established at the GIFT-IFSC by Indian and global vault service providers, or they are in the process of doing so. For individuals that import in advance in consideration of anticipated demand or the festival season, a storage facility is required at the exchange.

Additionally, any unit in a SEZ (Special Economic Zone) that is authorised to store bullion for the purpose of issuing bullion spot delivery contracts and bullion depository receipts (BDR) for trading on IIBX will be deemed to be a unit in IFSC, according to a notification from the Ministry of Commerce and Industry dated July 6, 2022.

As a result, the IIBX at GIFT-IFSC will work as a trading hub while the vaulting facilities at all of India’s major bullion centers would function as spokes to supply the bullion for the country’s exporters and jewelers.

What products will be made available for trade initially?

Initial trading is anticipated at IIBX for gold with a 1 kg 995 purity and gold 100 gm 999 purity with a T+0 settlement (100% upfront margin). The upfront payment is intended to lower risks and discourage market speculation. Later, the products will be made available for T+2 (margin-based contracts), which settles funds two business days after the order is completed.

On the IIBX, a special segment for UAE gold or gold in huge bars (12.5 kg) may be traded in future. Later phases would also see the availability of silver products, according to sources.

What are the advantages of having a bullion exchange in India?

All bullion imports for domestic consumption in India must go through the IIBX, which will serve as a gateway for those imports. A bullion exchange will give the benefits of price discovery, transparency in disclosures, guaranteed centralised clearance, and quality assurance in addition to giving different parties a trading outlet. A bullion exchange will be a crucial step toward the financialization of metal-based products in addition to offering a standardization and transparent mechanism.

Additionally, by requiring adherence to the Organisation for Economic Cooperation and Development’s (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the IFSCA has assured the bullion distributed through IIBX has legitimate source.

“This will lead to quality assurance and sourcing integrity. With the regulatory foundations in place, IFSCA intends to nurture a bullion ecosystem aimed at positioning India in the international markets, initially as a price influencer and ultimately as a price setter,” said an official from IFSCA.

How did the exchange take shape?

At her Budget address in 2020, Union Finance Minister Nirmala Sitharaman declared the establishment of IIBX at IFSC in Gujarat. The MoU between Central Despository Services (India) Limited, India INX International Exchange (IFSC) Limited, Multi Commodity Exchange of India Ltd, National Securities Depository Limited, and National Stock Exchange of India Ltd then aided in the formation of the holding company, India International Bullion Holding IFSC Ltd (IIBH). Subsequently, this holding company established IIBX, Bullion Clearing Corporation, and Bullion Depository in IFSC.

In December 2020, the International Financial Services Centers Authority (Bullion Exchange) Regulations, 2020, were made known for use in the trading of precious metals, such as gold and silver. These rules also apply to depository, vaults, clearing corporations, and bullion exchanges.

In February 2022, IIBX appointed Ashok Gautam as the organization’s first managing director and CEO. His last place of employment was IDBI Bank in Mumbai, where he held positions as executive director and head treasury. Gautam has also worked for State Bank of India offices in Singapore and Hong Kong.

Why was the project delayed?

The exchange’s first pilot run took place in August 2021, and it was scheduled to go online in October 2021, when PM Modi was invited to do so. The inauguration, however, was pushed and rescheduled for the Vibrant Gujarat conference in January 2022. Due to Covid, the summit was unable to take place, hence the launch was delayed a second time. The Indian Express was informed by the IFSCA in June 2022 that the previous scheduled launches had been postponed as they awaited for RBI guidelines regarding the importation of gold through the exchange.

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