The Indian Commodity Exchange launched the world’s first diamond futures exchange. Trading began in India on August 28 and will enable Indian companies to better hedge price risks.
90% of the world’s rough diamonds are polished in India. This means India carries the price risk associated with holding large inventories of diamonds. Sanjit Prasad, managing director of the Indian Commodity Exchange, said “Indian manufacturers need this type of financial product”.
A future is when a seller and buyer agree on a price at which to sell, at the the beginning of the contract. Any price drops during the term of the contract means there is a loss for the buyer, not the seller. In this way, diamond futures act as ‘price insurance’.
Sellers must gain certification from the International Institute of Diamond Grading and Research. After verification, the seller will then receive electronic credit equal to the carat deposited.
The ICEX is currently backed by 20 large diamond companies, including Reliance Capital Ltd. and MMTC Ltd. The ICEX will begin trading in 1 carat/100 cent contracts, before adding 50 cent and 30 cent contracts.
The ICEX expects 45 sightholders of De Beers Global Sightholder Sales (DBGSS) to transact on the exchange.
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