The Securities and Exchange Board of India (Sebi) on Monday took the first step towards unlocking the value of the huge gold hoard in the country.

The regulator cleared the framework for a gold exchange where the yellow metal will be traded in the form of an instrument called the electronic gold receipt (ECR).

At its board meeting, the market regulator also gave the green signal to silver exchange traded funds (ETFs) which will be like the gold ETFs that are traded on the bourses.

Union finance minister Nirmala Sitharaman had announced during her last budget speech that Sebi will be the regulator for the proposed gold exchange, responsible for the operations of the vaults to store the gold, determining the amount of gold in an item (assaying) as well as setting quality and delivery standards.

The electronic gold receipts represent the underlying value of gold. They have perpetual validity, meaning the holders can keep the instrument for as long as they want. The receipts will also have trading, clearing and settlement features similar to other securities.

According the mechanism proposed by Sebi, the depositor or the owner of the gold should deliver it to a vault manager who will record the information in a common interface and create the receipts that can be traded. The holder at his or her discretion can also withdraw the underlying gold from the vaults after surrendering the receipts.

The regulator said the vault manager should be a body corporate registered in India and should have a net worth of at least Rs 50 crore.

The entity will be registered and regulated as a Sebi intermediary to provide vault services for the gold deposited to create EGRs.

The gold receipts will be made “fungible” and “interoperable between vault managers”, which lower the costs associated with withdrawal of gold from the vaults.

Sebi had proposed electronic gold receipts of 1 kg, 100 grams and 50 grams denomination for trading on the exchanges.

Receipts of smaller denominations should also be allowed — 5 grams and 10 grams — that will lead to a greater retail participation. The details will be known once Sebi notifies the rules on the gold exchange.