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THE diamond sector has long been seen as an exclusive circle for insiders, but a new Singapore-based exchange plans to change that.
In a move aimed at establishing the precious stone as a financial asset class in its own right, the Singapore Diamond Investment Exchange (SDiX) will start trading in physically settled diamonds in September, using electronic exchange technology to allow for real-time price discovery and add liquidity to the market.
If successful, the exchange could catalyse Singapore's push into physical diamond trading, adding to recent efforts to position the city-state as a gold-trading hub, said IE Singapore, the trade-promotion government agency.
Prices for diamonds are currently fixed through offline transactions. SDiX executive chairman and chief financial officer Alain Vandenborre said: "There's no price transaction reporting or discovery, so it's totally non-transparent and very illiquid."
The stones are now sold mostly to jewellers. The exchange will therefore add additional demand through financial investors, he added.
SDiX will offer two types of products: standardised baskets of small diamonds, and single large diamonds. Mr Vandenborre said that prices for stones below one carat are often much more volatile, and hence of higher interest to traders; larger stones have higher capital appreciation over time.
All diamonds on the exchange will be graded by the Gemological Institute of America, and will first be kept with Bharat Diamond Bourse in Mumbai in India, with which SDiX has commissioned a dedicated physical vault. Once traded and sold, they will be moved to the Singapore Freeport. Both vaults are operated by Malca-Amit, a secured transport and storage provider.
For a start, SDiX will trade between 12.30pm and 5.30pm, with a one-hour lunch break at 2.30pm. This coincides with the 10am-3pm trading hours in India, the largest diamond cutting and polishing centre in the world.
The exchange will have both diamond suppliers and brokers as members, and has already garnered interest from more than 25 of them from six countries, including UOB KayHian, which will be the pioneer broker, and players such as Kiran Gems and Rosy Blue.
About half of these have confirmed membership with the exchange; the rest are in the process of registering as members, said Mr Vandenborre. The exchange will look to add members when it goes live.
SDiX hopes to gradually extend its trading window to capture trading activity in Europe, the US and Japan.
Chief executive Linus Koh said: "The idea is to focus liquidity in the earliest possible time and then we will expand it as we see the market develop."
Mr Koh was formerly the chief financial officer at the Singapore Exchange (SGX) and president and chief operating officer at the now-defunct Singapore Mercantile Exchange.
While starting out in physically settled diamonds, SDiX could expand into futures and other diamond derivatives in two to three years.
The exchange comes at a time of a credit squeeze for the diamond industry, which recorded US$22 billion in global sales of polished diamonds last year. In particular, diamond manufacturers - squeezed by giant mining companies charging high prices for rough stones on one end and big retail chains demanding low prices on the other - have struggled to service their debts, putting off banks which have cut back lending or pulled out entirely.
One of the exchange's private investors, David Tice, a US-based former mutual fund manager with experience managing US$1.6 billion across two funds, said: "Being able to hedge and sell forward will be very valuable for diamond polishers and wholesalers."
The US is the top retail market for diamonds, but demand for the stone in recent years has grown fastest in China and India. This makes Singapore "nicely placed" to capture diamond trade flows, said IE Singapore assistant chief executive officer Satvinder Singh.
"We are constantly looking out for new trading clusters we can attract and entrench in Singapore. We hope this platform will drive physical diamond trading out of here, and entrench Singapore as a diamond trading hub - if not for the world, at least for Asia."
Citing Singapore's strengths - an open economy, strong rule of law, established financial hub and educated talent pool - Mr Singh added: "We are starting out quite late in the precious metals market, but we definitely have what it takes to make an impact."
The exchange is majority-owned by Mr Vandenborre. Temasek Holdings is the second largest shareholder with a 20 per cent stake through its fully owned venture capital subsidiary, Vertex Ventures.
Vertex Ventures group president and chief executive officer Chua Kee Lock believes that the SDiX will transform the way diamonds are traded and potentially jumpstart the growth of the polished diamonds industry globally. "The excellent infrastructure and strong leadership team experienced in managing stock and commodity exchanges give SDiX a great head start in making this venture a success."
Jim Rogers, a well-known commodities bull, and former SGX chief executive Hsieh Fu Hua are also angel investors in the exchange.