The Indian Commodity Exchange (ICEX) is set to launch trading of diamond futures with a view to helping the industry hedge against wild fluctuations in polished diamond prices.
Investors will buy diamond futures on ICEX in a format similar to commodities exchanges such as Comex, Nymex and the London Metal Exchange. They will be able to choose from three different monthly contracts for diamonds weighing 0.30-0.49 carats, 0.50-0.69 carats and 1-1.09 carats.
According to Sanjit Prasad, managing director and CEO of ICEX, the Indian government approved trading diamond futures in September 2016, with a final sign-off expected from the Securities and Exchange Board of India (SEBI) in the coming weeks. “There are around 80 diamond sightholders globally and we have got 20 of those on our exchange,” he added.
“Our mock trading saw participation from around 100 people. Once diamond contracts start trading on an exchange, it will become a financial investment product. Diamonds have never been able to become an investment product due to low transparency in pricing,” Prasad said. “Out of every 13 diamonds (in the world), twelve are either cut or polished in India. So we should set the benchmark price as well.”
Under the proposed plan, traders will have access to the size and quality specifications of diamonds that are subject to a futures contract. ICEX has tied up with De Beers’ International Institute of Diamond Grading and Research (IIDGR), which will pack the diamonds and ensure the specifications match the information buyers were given at the time of entering into the contract.
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