The National Stock Exchange has instructed all members, including stockbrokers and wealth managers, to wind down the sale of digital gold on their platforms by September 10.
This came after capital markets regulator, the Securities and Exchange Board of India, flagged such sales as a breach of the Securities Contracts (Regulation) Rules (SCRR), 1957.
The move, ahead of the crucial festive season months when Indian consumers typically become active purchasers, has hit the country’s nascent yet burgeoning digital gold industry. Investors are worried over its future as well as its legitimacy in the eyes of financial sector regulators, Sebi as well as the Reserve Bank of India.
Sebi’s concerns may have stemmed from potential use of client funds by brokers to buy digital gold which it views as a non-broking business, according to a review of documents and discussions with multiple industry sources.
The lack of regulatory oversight on companies that sell and store physical gold corresponding to the virtual assets being allocated to the end-consumer, is also cause for concern. “…It has, however, come to the notice of SEBI/Exchange that certain members are providing a platform to their clients for buying and selling of digital gold. SEBI vide a letter dated August 3 has informed the Exchange that the said activity is in contravention of Rule 8 (3) (f) of SCRR, and members should refrain from undertaking any such activities,” a circular issued by NSE on August 10 showed.
According to a source, similar notices have been issued by all leading exchanges in India in recent weeks.
New age fintech brokers such as Upstox, Groww, Paytm Money as well as traditional brokers such as HDFC Securities and Motilal Oswal offer customers an option to “invest” in digital gold.
These companies have been given time till September 10 to discontinue the product as well as inform consumers about the move. The sale of digital gold in India, although a new concept, is nothing but facilitating the purchase and sale of physical gold through a digital medium, and the ability to hold it digitally.