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How does SDiX help set a “benchmark” price to value diamonds and how is it different from other diamond exchanges in other parts of the world?
Until now, diamond trading globally has been dominated by manual bilateral trading in physical ‘marketplace’ style bourses, with no transparency in pricing. This centuries-old trading system gives buyers no transparency on the trading process and no access to pricing information, meaning that investors and financial or commodity have not been able to engage in this market. SDiX platform is designed to enable accredited investors to trade diamonds as an asset class for the first time by providing an independent, electronic, and regulation-ready global market that creates a transparent price discovery mechanism for diamonds. Another big drawback in the traditional way of diamond trading has been the absence of fungibility. To address this, SDiX has come up with a platform to provide end-to-end trading for global participants, and price discovery in both immobilized single stones and standardised ‘baskets’, which are fungible collections of investment-grade diamonds. Both single stones and baskets can be traded electronically on a price/time priority in a continuous market, and buyers can place indicative price bids by diamond category. Hopefully, by the end of this year, we should be able to establish the benchmark price for two to three standardized baskets.
What types of quality standards are followed for the diamonds traded on the exchange?
The baskets are traded in 0.3, 0.5 and 1 carat stones and single stones are traded are from 2 carat up to 5.9 carat size and are round brilliant-cut. At a later stage we’ll be launching an electronic auction module which will allow all fancy shapes and colours to be traded. All stones traded on SDiX are GIA-graded and buyers of single stones can examine certifications directly through the platform. All baskets have an identical number of stones and total weight, and contain stones of identical cut, clarity and colour. To maintain the integrity of diamonds, as an exchange we don’t receive stones directly from suppliers. Instead, we give our specifications to the suppliers who send stones to the GIA lab. GIA does a quality check of each stone, prepare the baskets as per the diamond types and send them to the exchange’s vault.
What are the trading hours at SDiX? How are you planning to pump liquidity?
SDiX has a broker network spread across Singapore, Hong Kong, London and Dubai. Trading hours are between 14:30PM SGT/ HKT and 18:30PM SGT/ HKT to allow global traders to take advantage of the SDiX platform. In order to create liquidity and build volume, we’re dealing with only top quality investment-grade diamonds. Aided by the electronic platform, the highest bid price and the lowest selling price are shown on a real time basis, giving much more transparency and information. Additionally, we’ve market-makers based in London and Singapore, who offer the two-way quotes. Also, we’re raising double-digit million dollar trading capital to bring liquidity in the market. We’ve allocated it to a fund manager who has given a full discretionary mandate to market makers.
Any plans for the GCC region?
We’ve opened our offices in Hong Kong and another one in Mumbai and are planning to open an office in Dubai and London, possibly by the end of this year.
Currently, precious metals prices including diamond are in a downward trend. Do you believe the timing is right to launch SDiX exchange in the present times?
Prices of diamonds have been in a bearish mode for the last 4 years — from a peak in July 2011 until now the stone has lost between 20-25%. Despite that, the correction in diamond hasn’t been as severe as other commodities and we expect the cycle to pick up. Also, the supply of diamond is limited and a number of mines will be closing down by 2018 that would limit the supply of diamonds to cope with the demand. This will also support the price going forward.
How much volume and turnover you’re expecting in the first quarter and in one year of SDiX operation?
With any initiative like this there will be a gestation period. However, we believe once we get into derivatives trading, the liquidity and volume will definitely get a boost. Hopefully, we’ll get a go ahead for futures trading by mid-next year from an authority of Singapore.
Can foreign investors participate in diamond trading on the SDiX? Is there any limit?
There’s no limit on foreign investor participation, though the investor has to be an accredited one. For this, an investor either has to have S$2 million in assets or have an income of S$300,000. The investor has to have an account with one of our broker members, in order to be able to trade. The responsibility to ensure the fit and proper criteria of all investors lies with our licensed brokers.
How much competition there is from global diamond trading hubs such as London, Frankfurt and Dubai Diamond Exchange?
SDiX is first of its kind in the world — the world’s first and only commodity exchange for physically settled diamonds. So there’s no competition, as yet. But we believe there should be competition and more of such platforms would be a healthy development.
What’s the foremost challenge in attracting institutional investors?
Creating more liquidity and volume is one of the biggest challenges for us as of now. Our priority is to create an efficient spot market, set up benchmark price and then heading to the futures market, which is where the big play is. At this initial stage, we don’t expect hedge funds and commodity brokers to participate for the rest of this year, as they’re waiting on the sideline. As the exchange matures, it will offer more sophisticated products such as ETFs and derivatives that will further enhance the attractiveness of the platform for global investors.
Alain Vandenborre is founder and main shareholder of SDiX and co-founder and shareholder of Le Freeport Management, formerly known as The Singapore Freeport. A serial entrepreneur and private investor with 25 years of experience, he founded his first company at the age of 26 in laser microelectronics technology. Vandenborre has previously held a number of senior positions in the private equity and venture capital industry including the Chairman of the Asia Pacific Venture Capital Private Equity Association.