Diamond futures in offing

ANTWERP – Transparent and liquid trading in diamond futures should be a reality within the next couple of years, two separate pioneering groups believe, creating a market worth up to US$200 billion.

Futures are contracts for commodities or shares bought at agreed prices but delivered and paid for later. The groups, one of which will kick off its plans as early as September, unveiled their ideas in world diamond capital Antwerp last week to an interested, but somewhat nervous industry.Rapaport Group, whose prices already serve as a benchmark for the sector, will launch spot cash tenders from September 17 in what its chairman hopes will be precursor to the first ever diamonds futures trade.”We’re going to produce something like a commodities contract for diamonds…We will be pushing pricing transparency to a level it’s never been to before,” Martin Rapaport told Reuters in an interview on Thursday.His company will run weekly Internet auctions along the lines of those on eBay for individual polished diamonds of 1,01 to 1,19 carats and of higher end colour, clarity and cut.A chart of prices for the various grades could be used to produce a single futures price with cash settlement each month.”It’s very much the same way as you have the Dow Jones Industrial Average from individual stocks,” Rapaport explained.Rapaport wants regulatory approval before he launches his futures market and plans talks with the US Commodity Futures Trading Commission soon.”What’s different about our effort and other efforts is that we are going to be asking for a government regulated contract rather than a simple derivatives contract….It’s going to take a while, a year and a half to two years,” he said.RIVAL IDEAS Just down the road from Rapaport’s Belgian office, several banks, the Chicago Board of Trade (CBOT) and rival pricing service PolishedPrices were presenting their ideas for a derivatives market that could evolve into a futures exchange.A task force sponsored by Antwerp’s High Diamond Council (HRD) and with representatives from ABN AMRO, CBOT, ICICI Bank and diamond companies aims to chart the way forward.”The advantages are clear.A contract would give dealers with large stocks the chance to limit their risk,” Freddy Hanard, director general of the HRD told a news conference.Derivatives trades, advocates argue, would help finance an industry whose debt level has doubled in five years to US$12 billion, against market expansion of just 20 per cent.Charles Wyndham, founder of PolishedPrices, said the task force’s job would be to establish the terms of a contract, from its size, to certification, to the issue of physical delivery or not and the date it would start.”I would be prepared to take a big bet that it would be within a year,” he said.Proponents acknowledged diamond dealers’ concerns that speculators could prompt sharp price movements.”With more trade there’s more scope for higher fluctuations…but things are moving ahead whether you like it or not,” said Loet Kniphorst, head of ABN AMRO’s diamond and jewellery group.The port city of Antwerp is home to some 1 800 registered diamond dealers and sees more than half the world’s diamonds pass through it, generating annual sales of US$37 billion.Nampa-ReutersThe groups, one of which will kick off its plans as early as September, unveiled their ideas in world diamond capital Antwerp last week to an interested, but somewhat nervous industry.Rapaport Group, whose prices already serve as a benchmark for the sector, will launch spot cash tenders from September 17 in what its chairman hopes will be precursor to the first ever diamonds futures trade.”We’re going to produce something like a commodities contract for diamonds…We will be pushing pricing transparency to a level it’s never been to before,” Martin Rapaport told Reuters in an interview on Thursday.His company will run weekly Internet auctions along the lines of those on eBay for individual polished diamonds of 1,01 to 1,19 carats and of higher end colour, clarity and cut.A chart of prices for the various grades could be used to produce a single futures price with cash settlement each month.”It’s very much the same way as you have the Dow Jones Industrial Average from individual stocks,” Rapaport explained.Rapaport wants regulatory approval before he launches his futures market and plans talks with the US Commodity Futures Trading Commission soon.”What’s different about our effort and other efforts is that we are going to be asking for a government regulated contract rather than a simple derivatives contract….It’s going to take a while, a year and a half to two years,” he said.RIVAL IDEAS Just down the road from Rapaport’s Belgian office, several banks, the Chicago Board of Trade (CBOT) and rival pricing service PolishedPrices were presenting their ideas for a derivatives market that could evolve into a futures exchange.A task force sponsored by Antwerp’s High Diamond Council (HRD) and with representatives from ABN AMRO, CBOT, ICICI Bank and diamond companies aims to chart the way forward.”The advantages are clear.A contract would give dealers with large stocks the chance to limit their risk,” Freddy Hanard, director general of the HRD told a news conference.Derivatives trades, advocates argue, would help finance an industry whose debt level has doubled in five years to US$12 billion, against market expansion of just 20 per cent.Charles Wyndham, founder of PolishedPrices, said the task force’s job would be to establish the terms of a contract, from its size, to certification, to the issue of physical delivery or not and the date it would start.”I would be prepared to take a big bet that it would be within a year,” he said.Proponents acknowledged diamond dealers’ concerns that speculators could prompt sharp price movements.”With more trade there’s more scope for higher fluctuations…but things are moving ahead whether you like it or not,” said Loet Kniphorst, head of ABN AMRO’s diamond and jewellery group.The port city of Antwerp is home to some 1 800 registered diamond dealers and sees more than half the world’s diamonds pass through it, generating annual sales of US$37 billion.Nampa-Reuters