SEBI Proposes New Rules for Gold and Silver ETF Valuation

The Securities and Exchange Board of India (SEBI) has announced a proposal to reform the valuation process for physical gold and silver held by exchange-traded funds (ETFs). This initiative aims to enhance transparency and standardize the methods used by asset management companies (AMCs) for pricing these precious metals. Currently, the valuation of these assets is linked to prices set by the London Bullion Market Association (LBMA), which has resulted in inconsistencies across the market.

Under the existing regulations, ETFs value their gold and silver based on LBMA prices in US dollars per troy ounce. These figures are then converted into Indian rupees using the Reserve Bank of India’s (RBI) reference rate, after which additional costs such as customs duty and taxes are incorporated. The final valuation is further adjusted for the purity of the metals, plus a discount or premium based on domestic prices. This method has led to significant discrepancies among AMCs, as they exercise discretion in determining the applicable discount or premium.

SEBI’s proposal seeks to rectify these issues by utilizing prices determined at Indian commodity exchanges for ETF valuations. Currently, the Indian Bullion and Jewellers Association and commodity exchanges fix spot gold and silver prices through a polling process conducted twice daily among various stakeholders. This process averages the collected prices, discarding outliers, before publishing the final figures online.

Enhancing Transparency in Pricing

The regulator’s suggestion to adopt these exchange-determined prices is expected to provide a more accurate reflection of domestic market conditions. Given that these exchanges operate under SEBI’s oversight, the proposal promises to bolster transparency in the valuation process.

Nevertheless, to improve the pricing mechanism, SEBI must address the limitations of the current polling system. Observers note that the participation in price polling on the Multi Commodity Exchange (MCX) is often limited to fewer than 20 individuals, predominantly from the same geographic area. This lack of diversity raises concerns about the integrity of the pricing process, increasing the risk of manipulation.

SEBI should mandate that the sample size for price polling be expanded to at least 100 participants, ensuring a more representative geographical and occupational mix. Additionally, the exchanges must closely monitor the prices reported by participants to eliminate those consistently submitting excessively high or low figures. Ensuring the integrity of participants in this polling process is essential to restoring trust and transparency in bullion pricing.

Next Steps for SEBI

As SEBI moves forward with its proposal, it will be critical to implement these changes effectively. By addressing the current shortcomings in the price polling mechanism and adopting a more standardized valuation approach, the market regulator aims to create a fairer and more transparent environment for ETF investors.

The intention behind these reforms is not merely regulatory compliance but fostering confidence among investors in India’s gold and silver markets. With the right measures in place, the proposed changes could signify a significant step forward for the Indian investment landscape, enhancing the credibility of ETFs in the process. Published on July 23, 2025.