Sebi to Expand Vault Manager Rules for Bullion ETFs, Derivatives

New Delhi, Aug 11 (PTI) Markets regulator Sebi on Tuesday proposed expanding the regulatory framework for vault managers to cover physical bullion underlying a wider range of products, including gold and silver ETFs and bullion derivatives.

The proposal is part of Sebi's plan to review and expand the Sebi (Vault Managers) Regulations, 2021, and establish a harmonised vaulting framework for all bullion underlying Sebi-regulated products.

Under the proposed framework, vault managers would cover physical gold, silver and other precious metals underlying Electronic Gold Receipts (EGRs), bullion ETFs, bullion derivatives and any other bullion-related instruments specified by the regulator.

Currently, the vault manager framework primarily governs the storage and safekeeping of physical gold underlying EGRs traded on recognised stock exchanges.

Vault managers are responsible for receiving, storing and safeguarding gold, as well as facilitating the creation and extinguishment of EGRs.

The 2021 regulations prescribe requirements relating to registration, governance, net worth, risk management, internal controls, insurance, record maintenance, reconciliation, audit, grievance redressal and business continuity.


Sebi said the existing framework provides a strong regulatory base that can be extended to a broader range of financial products requiring secure custody of physical precious metals.

"Given the rapid growth of physically backed precious metal products and the increasing concentration of investor assets in a limited number of vaults, extending the Vault Manager regulatory framework to cover storage of gold, silver and other precious metals underlying ETFs and derivatives on such bullion would mitigate operational risks, ensure regulatory consistency across similar custody activities and strengthen investor protection in the Indian securities market," Sebi said.

The regulator proposed establishing "a harmonised vaulting regime applicable to all physical bullion, including gold, silver and such precious metals, which are the underlying of Sebi-regulated products and are held pursuant to Sebi regulatory requirements".

Such a regime, Sebi said, would ensure consistent standards for vault infrastructure, governance, eligibility criteria, operational controls, purity verification, insurance, cybersecurity, business continuity, audit, inspection, record maintenance and risk management across all regulated vaults.

"It would also facilitate effective supervision by Sebi, and enhance investor confidence by ensuring that all investor-owned bullion held for Sebi-regulated products are subject to a common and robust regulatory framework, irrespective of the product through which such exposure is obtained," it said.

The regulator noted that India's bullion market has evolved significantly with the growth of products such as gold and silver ETFs and bullion-backed derivatives.

The Securities and Exchange Board of India (Sebi) has invited public comments till September 1 on the proposed changes.