OJK Reveals Collateral Behind Gold ETFs: Every Unit Must Be Backed by Physical Gold

The Financial Services Authority (OJK) has confirmed that the newly launched gold Exchange Traded Fund (ETF) products on the Indonesia Stock Exchange (BEI) are backed by physical gold of equivalent value. This guarantee is a crucial part of ensuring that gold investment instruments traded on the exchange have underlying assets that are genuinely available. Chief Executive of Capital Market, Derivative Finance, and Carbon Exchange Supervision at OJK, Hasan Fawzi, stated that every unit of a gold ETF reflecting a certain value will have physical gold of equivalent value. The existence of this gold will subsequently undergo a reconciliation process. “So every unit of gold ETF that reflects a certain value figure, there will be a physical amount of gold with an equivalent value whose existence we will ensure,” Hasan said in Jakarta on Monday. Hasan explained that this mechanism applies from the initial issuance of the gold ETF as well as when there is a net subscription. At the time the gold ETF units are issued or a net purchase occurs, there is physical gold serving as the underlying asset for the product. Ownership of that physical gold is then reflected through an Electronic Gold Receipt (EGR) or electronic proof of gold ownership. With this mechanism, the OJK can perform reconciliation to ensure the underlying asset of the gold ETF is indeed physical gold. The reconciliation is also intended to prevent the existence of underlying assets that are not real or are fictitious. The EGR itself is an electronic proof of gold ownership backed by physical gold and recorded in the system of the Indonesian Central Securities Depository (KSEI). The physical gold serving as the basis is traded, stored, and administered by institutions that function as both providers and custodians of gold. Deputy Commissioner for Licensing and Supervision of Capital Market Investment Management and Securities Institutions at OJK, Eddy Manindo Harahap, stated that seven investment managers have applied for permits to issue gold ETFs. Of these seven, six have received effective statements from the OJK. Meanwhile, five gold ETF products have been officially launched and are available for trading.