The NSE’s circular banning its members from selling digital gold could potentially impact sales this year as it is an industry that has roughly some value Rs 5,000 crore annually.

Stock brokers and fintech companies must, according to a. stop selling digital gold on September 10th report from the Economic Times. The instructions were in one circular issued by the National Stock Exchange of India (NSE). The NSE circular stems from the concerns of the Securities and Exchange Board of India (SEBI) that the sale of digital gold by NSE members was in violation of the 1957 Securities Contracts (Regulation) Rules (SCRR).

Digital gold is on the rise in India with sales registration 70 percent Growth during the pandemic. the World Gold Council said India traded 4 to 5 tons of digital gold with 25 lakh investors in 2019. The rise in popularity is due to changing perceptions of the safety of digital gold, its cost compared to physical gold, and the liquidity it provides during times of financial stress.

However, fixed assets remain unregulated as they do not fall within the purview of either the SEBI or the Reserve Bank of India (RBI). The circular could affect digital gold sales, which typically rise in August and September due to certain Hindu festivals celebrated through gold purchases.

India’s digital gold market

A report in The Week explains that digital gold is a way to buy or trade physical gold that can be held digitally through online platforms. As soon as a user buys gold, the seller stores the corresponding amount of gold in his lockers in exchange for a virtual purchase certificate.

The top three companies offering digital gold in India are:

  • Augmont Gold Ltd
  • MMTC-PAMP India
  • Digital gold India.

Most digital gold sellers have partnered with one of these companies. Industry insiders informed ET that India’s digital gold market is worth about 5,000 billion rupees annually.

SEBI’s problems with NSE members selling digital gold

According to the ET report, the Securities and Exchange Commission believes brokers could use customer funds to buy digital gold that is not a brokerage business.

The report highlighted the lack of regulatory oversight for companies, but added that companies have a self-regulatory and due diligence mechanism to make up for this.

A securities attorney told ET that digital gold is currently falling into a regulatory gray area and brokers cannot sell digital gold unless SEBI publishes a number of regulations. “These fintech firms have no obstacle to set up a separate legal entity and set up a different site to sell digital gold,” the lawyer was quoted as saying.

What does the NSE circular say?

The circular issued on August 10th stated that rule 8 (3) (f) of the SCRR prevents members from “acting either as principal or employee in any business other than securities or commodity derivatives”.

“However, SEBI / Exchange has found that certain members provide a platform for their customers to buy and sell digital gold. In its letter of August 3, 2021, SEBI informed Exchange that this activity violates Rule 8 (3) (f) of the SCRR above and that members should refrain from such activities, ”the circular states.

It gave members a month to adhere to the guidelines. Many players like Upstox, Groww, Paytm Money, HDFC Securities, Motilal Oswal etc. will be affected by the circular as they will not be selling digital gold on their platforms. However, NSE said existing digital gold holders need not worry about the circular as their holdings would remain safe.

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