ICEX Launches World’s First Diamond Futures Contracts

by Vinaya HS on September 25, 2017

in Finance

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ICEX has launched 1 carat diamond futures contract, world’s first ever such trading. At the recent launch of world’s first diamond future contracts, the contract was traded at Rs. 3,279/cent where one cent carries the value of the one-hundredth of a carat. This contract is up for its delivery in the month of November this year.

India is a leading global diamond polishing hub, catering to more than 90% of the world’s polishing market for rough diamonds. India imports rough diamond of value more than 19 billion dollars and exports the polished diamonds worth 24 billion dollars annually.

ICEX, the Indian Commodity Exchange, has launched the diamond futures contracts to facilitate the exporters with a hedging instrument. Till now the registered members are 103, ICEX has introduced 1 carat diamond futures contract which is followed by contracts on the monthly settlement basis. After the this first contract is successful in the share market, other contracts of 50 cents and 30 cents will also be launched on nifty future. This 1 carat contract will have their delivery center based in the city of Surat, Gujarat and will expire in the months of November, December and January.

Another major announcement that was made as well was the merger of ICEX with National Multi Commodity Exchange (NMCE), which is an exchange based in Ahmedabad, Gujarat. ICEX will soon contact the National Company Law Tribunal (NCLT), Ahmedabad to get the green signal on the merger. After it gets the nod on the merger from NCLT, the ICEX will be permitted to introduce some agricultural commodities like rubber and coffee.

This diamond futures launch was made a reality after several efforts of persuasion and coaxing of two and a half years where several ministries were approached and convinced about the scope of this contract. Since diamond is not a notified commodity, it was important for the exchange to persuade the government officers about the need of such contract. Sebi also took some time to approve the contract as the board had to consult the physical market intermediaries in person.

It has been for the nine months that ICEX has been polling polished diamond prices. This polling prices from the actual market is treated as the benchmark for the settlement of the contract. The price variation would be Re 1 with an initial margin of 5% on the basis of VAR or value at risk. ICEX will be providing the HVS2 quality diamond which will also be certified by the International Institute of Diamond Grading & Research (IIDGR), a De Beers group company where Malca Amit will provide the vaulting services.

The diamond futures contract can be traded in one cent. One can collect many over some time to add up to 1 carat after which it can be made a deliverable like systematic investment plan (SIP). Till the time it is delivered, the trade quantity will remain with the trader and the price quoted will include the delivery and transaction charges too.

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