The world’s first diamond futures contract launched in India on Monday (August 28). It will help Indian diamond polishers hedge price risks, the Indian Commodities Exchange (ICEX) said in a statement.
The journey to create the exchange started over two and a half years ago, and included several negotiations with India’s Ministry of Finance and the Securities and Exchange Board of India.
Trading will begin with 1-carat/100-cent contracts, but 50- and 30-cent contracts will eventually be added. “Indian manufacturers most require this type of financial product,” ICEX Managing Director Sanjit Prasad told Bloomberg.
He added that India carries the price risk of holding huge inventories of cut and polished and rough diamonds. More than 90 percent of rough diamonds are polished in India, and the country imported about 153 million carats of rough diamonds in 2016.
The exchange features 20 large diamond companies, including Rosy Blue (India) and Kiran Gems. Prasad said ICEX expects about 45 sightholders from De Beers, Anglo American’s (LSE:AAL) diamond division, to transact on the platform. The exchange is also supported by companies such as Reliance Capital and MMTC, and around 4,000 clients have already registered.
Diamonds sold through the contracts will need to be certified by the International Institute of Diamond Grading and Research, which is backed by De Beers, the world’s biggest diamond producer.
Contracts for expiry in November, December and January will use a delivery center at Surat in the western state of Gujarat.
There have been multiple attempts to make diamonds into a more tradable asset class, independent diamond analyst Paul Zimnisky told the Investing News Network via email.
“I hope that this is successful as it would be good for the industry. Most importantly it would allow lenders to layoff risk, in turn allowing for more liquidity in the industry,” he added.
Earlier this month, ICEX completed a mock trading demonstration to show participants technical features of the exchange and to test its infrastructure. India is the third-largest diamond jewelry market behind the US and China, accounting for about 8 percent of global demand.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.