It is good to note the rapid speed with which the implementation of international leverage is advancing at Gujarat International Finance Tec-City. Because it speeds up the process for India to become a price-fixer in the international leverage market, from becoming a price. The absence of a spot gold market in the country has forced domestic stakeholders to use the prices traded on international stock exchanges to calculate local prices. The signing of a memorandum of understanding between the leading stock exchanges and commodity exchanges and depository participants last week lays the groundwork for building the market infrastructure on which the leverage exchange will be based. In addition to helping to uncover prices in India, the exchange could also become a future hub for the gold trade if international traders are encouraged enough to move part of their trade here. The necessary regulatory changes were made by notifying that leverage delivery contracts and depository certificates on the spot could be traded at GIFT IFSC. Lever vault services have also been established to facilitate the storage of gold traded on the offshore exchange. Of greater importance is the fact that the Authority for International Financial Services Centers has been given the responsibility of overseeing the implementation and operation of the stock exchange in accordance with IFSCA (Bullion Exchange) regulations, 2020.
The controversy over which regulator can monitor spot gold exchange has stopped the idea so far. The center addressed the fact that IFSCA has become a regulator. Most spot commodity markets are on the state list; outside the domain of SEBI. Determining the local price of gold based on the prices traded on the exchange platform provides transparency that does not currently exist. The spot price of gold is currently decided by the Indian Association of Gold and Goldsmiths, based on offers and purchases from the ten largest dealers. These dealers convert international gold prices into rupees, adding tax and commission to quote their price. Experience to date in other countries, such as the United Kingdom, shows that this method of pricing is vulnerable to manipulation. If the spot exchange goes to GIFT IFSC, it can also help jewelers and traders to buy gold directly from foreign traders, instead of using banks as intermediaries. The IFSC participant base is also likely to be boosted by a strong leverage exchange in the IFSC.
Attracting foreign companies that trade gold in other offshore centers on the domestic stock market may not be so easy. The IFSCA must provide sufficient incentives through lower transaction costs and other benefits to shift them to the IFSC GIFT. Also, it is not clear whether retail customers will be able to sell their gold on the stock exchange. If domestic retail participation needs to be facilitated, IFSC gold testing centers will need to be established, and regulatory changes may be needed.