IFSCA notifies IFSCA (Bullion Market) Regulations, 2025 repealing 2020 regulations

On 4-2-2025, the International Financial Services Centres Authority notified the International Financial Services Centres Authority (Bullion Market) Regulations, 2025 repealing the International Financial Services Centres Authority (Bullion Market) Regulations, 2020. The provisions came into force on 13-2-2025.

Key Points:

1. Application for Recognition of Bullion Exchange and Bullion Clearing Corporations:

   • In case a person wants to be a bullion exchange or bullion clearing corporation, an application has to submitted to the International Finacial Services Centres Authority (‘IFSCA’).

   • Application has to be accompanied with a copy of memorandum of association, articles of association and bye-laws.

   • The application should be accompanied with the documents relating to regulation and control of bullion contracts including:

     ✓ The documents relating to the governing board, its constitution and powers of management and the manner in which its business is to be transacted;

     ✓ Powers and responsibilities of the office bearers;

     ✓ admission of various classes of members, the qualifications for membership, and the exclusion, suspension, expulsion and re- admission of such members.

2. IFSCA can grant in- principal approval, valid for a period of 1 year which can be extended for a period of maximum 6 months, once the following conditions have been complied with by the Applicant:

   • is a company limited by shares;

   • is demutualised;

   • its directors and shareholders who hold or intend to hold shares, are fit and proper persons;

   • the applicant satisfies the conditions relating to ownership and governance structure;

   • the applicant satisfies the net worth requirements;

   • has the requisite capability including financial capacity, functional expertise and infrastructure;

   • has an online screen-based trading system;

   • has an online surveillance capability which monitors positions, prices and volumes in real time so as to ensure market integrity;

   • have a comprehensive network of bullion trading members and has adequate facility to admit and regulate its members;

   • has adequate consumer grievance redressal mechanism and arbitration mechanism;

   • has adequate systems’ capacity supported by a business continuity plan including a disaster recovery site;

   • has an adequate risk management mechanism;

   • has the capacity to establish a fund to guarantee settlement of trades;

   • applicant has in its employment, sufficient number of persons having adequate professional and other relevant experience to the satisfaction of the IFSCA.

3. Period of recognition/ renewal/ withdrawal:

   • Period- Unless granted on a permanent basis, will be valid for a period of not less than 1 year;

   • Renewal- provisions applicable to the grant of recognition will be followed for renewal;

   • Withdrawal- recognition granted can be withdrawn by the IFSCA in accordance with Section 5 of Securities Contracts (Regulation) Act, 1956 relating to “Withdrawal of Recognition”.

4. Operational Framework of Bullion Exchange:

   • Every bullion exchange will have to use the services of bullion clearing corporations for settlement of its trade starting from 13-2-2025.

   • Bullion can avail the services of a bullion clearing corporation pursuant to a written agreement stipulating:

     ✓ their rights and obligations;

     ✓ conditions for admission of securities for clearing and settlement;

     ✓ risk management measures;

     ✓ charges for clearing and settlement and other incidental and consequential matters.

5. Functions of Bullion Exchange:

   • Protect the interests of consumers;

   • Regulate bullion contracts;

   • Work with associations, global agencies or institutions;

   • Promote growth, transparency;

   • Orderly development of the bullion market;

   • Regulate Bullion contracts;

   • regulating the working of the bullion trading members,

   • establishing and enforcing good delivery standards;

   • prohibiting fraudulent and unfair trade practices in the bullion market;

   • promoting consumers’ education and training of intermediaries of bullion market;

   • setting standards of quality, quantity and other parameters and means of verification of such standards;

   • setting standards for vaulting and transport of bullion in consultation with the bullion depository

6. Obligations of Bullion Clearing Corporations:

   • The payment and settlement in respect of a transaction in a bullion exchange or a bullion clearing corporation will be determined in accordance with the netting or grossing procedure.

   • Payment/ Settlement in respect of transaction between parties will be final, irrevocable and binding on such parties.

   • The right of the bullion exchange/ bullion clearing corporation, to appropriate any collaterals or deposits or margins contributed by the bullion trading member/ bullion clearing member/ consumer towards its settlement or other obligations will take priority over any other liability of or claim against the said bullion trading member, bullion clearing member or consumer.

   • The right of a bullion clearing corporation to recover the dues from its bullion clearing members will have priority over any other liability of or claim against the bullion clearing members.

7. Orderly Winding Down:

   • Every bullion clearing corporation will have to maintain a framework for orderly winding down of its critical operations and services covering both voluntary and involuntary scenarios.

   • This framework will provide for:

     ✓ timely and orderly settlement or cessation or transfer of position;

     ✓ transfer of the collateral/ deposit/ margin/ any other asset of the members to another bullion clearing corporation that would take over the operations of the bullion clearing corporation.

8. A bullion exchange/ bullion clearing corporation should have a minimum net worth of USD 10 million at all times.

9. Every bullion exchange and bullion clearing corporation will have to adopt the broader principles of governance prescribed by International Organization of Securities Commissions and Principles for Financial Market Infrastructures.

10. Every bullion exchange will have to establish a consumer education and protection fund to promote consumer education and provide compensation to consumers in case of defaults by the bullion trading members.

11. Every bullion clearing corporation will have to establish and maintain a Settlement Guarantee Fund to guarantee the settlement of trades executed on a bullion exchange.

12. Repeal and Supersedes:

    • Repeals- IFSCA (Bullion Exchange) Regulations, 2020;

    • Supersedes–

      ✓ Circular No. F. No.286/IFSCA/CMD-DMIIT/PM/2021 dated 13-9-2021;

      ✓ Circular No. 286/IFSCA/CMD-DMIIT/PM/2021/001 dated 30-11-2021;

      ✓ Circular No. F. No.329/IFSCA/Bullion MIIs/2022-23 dated 1-3-2023.