RBI Approves BSE Subsidiary’s Trade Receivables

An Overview

Under the Payments and Settlement Systems Act, 2007, BSE Technologies acquired in-principle authorisation from the Reserve Bank of India (RBI) to set up and run the Trade Receivables Discounting System (TReDS). BSE Technologies is a completely owned BSE company that specialises in IT solutions.

TReDS is an electronic platform that allows Micro, Small, and Medium Enterprises (MSMEs) to finance or discount their trade receivables through numerous financiers. Corporates and other customers, including government departments and public sector companies, could owe the trade receivables.

Further Key Takeaways

According to the BSE-owned IT solutions firm, “The TReDS platform will bring all of the above parties together to make it easier to submit, accept, discount, trade, and settle MSMEs’ invoices or bills. After receiving final approval and a certificate of licence from the RBI, BSE will begin its TReDS business.”

BSE’s Managing Director and Chief Executive Officer, Ashish Kumar Chauhan, stated, “BSE Tech specialises in IT solutions for the commodities, banking, and financial services industries. BSE Tech will now be able to offer MSME an alternative to manage their working capital more efficiently using the TReDS platform, thanks to RBI’s in-principle approval to set up TReDS. With the launch of this TReDS platform, we anticipate that MSMEs’ finance concerns will be better addressed, and that this would contribute to their growth.”

Electronic Gold Receipts from BSE

Another development is that the BSE is preparing to launch electronic gold receipts (EGRs) on its platform, which will aid in the creation of a unified price structure for the yellow metal across the country.

This follows the approval of a proposal for a gold exchange by the SEBI Board. Unlike some other countries that have spot markets for physical gold trade, India now only allows trading in gold derivatives and gold exchange traded funds (ETFs).

“EGRs would have trading, clearing, and settlement capabilities akin to other securities now accessible in India,” the market regulator stated.

Frequently Asked Questions (FAQs)

Q1. What exactly is EGR?

According to SEBI’s concept paper, actual gold would be exchanged for an electronic gold receipt, which would be placed with a vault manager and subsequently traded. The government wants India’s disproportionate dominance in the physical gold market to be mirrored in the financial gold market.

Q2. Why are EGRs required?

EGR is a means of persuading individuals not to hoard gold by establishing a market with transparent pricing and liquidity. India is a net gold importer. We are not price setters, but rather price takers. The goal is to transition from price takers to price setters. As a result of price discovery on the exchanges, gold pricing will become more transparent. The gold exchanges would provide pricing transparency, investment liquidity, and certification of gold purity.

Q3. How will EGR function?

After relinquishing the EGRs, EGR holders can extract the underlying gold from the vaults at their leisure. Storage and safeguarding of gold deposits, creation of EGRs, withdrawal of gold, grievance settlement, and periodic reconciliation of physical gold with depository records would be the responsibility of SEBI-accredited vault managers. The vault manager’s net worth will be at least Rs. 50 crore.