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Reliance Group’s ICEX to launch world’s first diamond futures exchange.



Sanjit Prasad

Sanjit Prasad

The smallest players in the investor value chain can now trade in Diamonds. With a first-of-its-kind diamond futures contracts in the world, The Indian Commodity Exchange Ltd (ICEX) will allow futures trading and delivery in 1 cent (1 cent = 2 mg = 100th particle of a carat) size with ex-Surat as its delivery centre. ICEX, a Reliance Group anchored platform, is set to facilitate trading and delivery of smallest tradeable polished diamonds on its platform, and the exchange is scheduled to launch futures trading by the end of August.

The exchange has kept the trading and delivery size low to attract participation by all types of business units in the value chain including rough importers, brokers, sightholders, traders, processors, suppliers, stockists and retailers like jewellery manufacturers. According to contract specifications approved by the Securities and Exchange Board of India (Sebi), a trader can order in the maximum size of 3,000 cents with a minimum tick size of Rs 1 for every cent of the diamond trade.

“The unique selling proposition (USP) of the small contract is to attract a retail crowd as the smallest lot size is worth Rs 3,500. Since there is no other diamond futures exchange in the world with such small contract sizes, all investors would find an opportunity in this contract to lock in their risks from price volatility and price falling diamond by taking positions on the exchange,” said Sanjit Prasad, Chief Executive Officer, ICEX.

The exchange has zeroed in on Surat as the only delivery centre as of now with the trading price exclusive of the goods and services tax (GST) and other levies.

“We are encouraged by the launch of the ICEX as such facility is not available anywhere in the world. Diamond being price-volatile, hedging is needed. The exchange has been organising seminars for educating traders and individuals in the value chain. We are looking for the opportunity to start trading on the exchange. Many diamond dealers and processors have taken membership of the ICEX and others are on the verge of doing that,” said Dinesh Navadia, president, Surat Diamond Association.

The daily price limits for the contracts have been set at 3% and 6% (without any cooling off period) after which, in case the daily price limit of 6% is also breached, then after a cooling off period of 15 minutes, the daily price limit will be relaxed up to 9%. In case price movement in international markets is more than the maximum daily price limit (currently 9%), the same may be further relaxed in steps of 3% beyond the maximum permitted limit, under intimation to the Regulator.

The initial margin has been set at a minimum of 4% or VaR whichever is higher and in addition to this ELM of 1% shall be levied. Additional margin requirements will also be imposed depending upon the volatility in trades. The maximum allowable open position   for individual clients has been pegged at 60,000 cents for all Diamond contracts combined together.  Each member will be allowed to hold maximum open positions worth 600,000 cents or 15% of the market wide open position whichever is higher, for all Diamond contracts combined together collectively for all clients.

A seller can deliver a quality better than the parameters specified above, but there will be no premium for the same. The stone should not have Brown, Green or Milky discoloration and should not have black | dark inclusion.

The stage is all set for the creation of new completely transparent price discovery mechanism which until now had been the autocratic monopoly of a single individual perched at a location which technically had nothing to do with diamonds. Diamonds are forever and India with its smart cities of Surat and Mumbai is where the future of diamonds lies.