MUMBAI: India is all set to become the first country in the world where polished diamonds are traded on a commodity exchange. The Indian Commodity Exchange Ltd (ICEX) is in the final stages of launching diamond contracts that will allow even individuals to trade in the precious stones in a transparent manner.
According to senior exchange officials, the final approval from the Securities and Exchange Board of India (SEBI) is expected soon and a formal launch is likely by March. Incidentally, the exchange has already received the in-principle approval from the regulatory body for the launch of diamond contracts.
The Reliance Capital-promoted exchange, which has MMTC, Indiabulls Housing Finance and IDFC as major shareholders, has been able to get on board around 50 members and has even conducted mock trading to test the systems. It has also tied up with International Institute of Diamond Grading and Research (IIDGR), a 100 per cent subsidiary of De Beers, for grading and packing of the diamonds.
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“There are around 80 diamond site-owners globally and we have got 20 of those on our exchange,” Sanjit Prasad, managing director and chief executive officer of ICEX told
“Our mock trading saw participation from around 100 people. Once diamond contracts start trading on an exchange, it will become a financial investment product. Diamond has never been able to become an investment product due to low transparency in pricing,” he added.
Currently, there is no global benchmark price for diamonds that has made the stone less attractive compared to gold or silver in terms of investment options. While India is the third-largest consumer of diamond after US and China, it accounts for the largest share in the diamond cutting and polishing industry.
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“Out of every 13 diamonds, 12 are either cut or polished in India. So we should set the benchmark price as well. We basically import prices of all the commodities that are currently traded in India. It is time we export a benchmark price as well,” says Mr Prasad, who has earlier worked with Multi Commodity Exchange of India (MCX) and Metropolitan Stock Exchange of India (MSEI).
Interestingly, the exchange is designing the diamond contracts in a manner wherein individuals would be able to trade at a very low cost. While one lot size representing one cent would cost only Rs.1,500, investors effectively will be able to trade with just five per cent margin money.
The exchange has, however, kept the minimum physical delivery lot at one carat (1 carat equals 100 cents). Put simply, it means that if someone buys a contract for 1 carat diamond, he will get the physical delivery of the stone as well. Meanwhile, individuals investing in smaller lot sizes would be able to trade in electronic units representing the value of the diamond.
Diamond was one of the six new commodities that the government allowed for trading on exchange platform in September. Apart from diamonds, the government notified tea, eggs, cocoa, pig iron and brass.