Diamond trading shines bright for investors

Diamond trading shines bright for investors

Diamonds can now be bought more cheaply and traded more easily with the launch yesterday of an electronic diamond exchange here, in a move set to add sparkle to Singapore's investment scene.

The Singapore Diamond Investment Exchange (SDiX), which is backed by investors, including a Temasek Holdings unit, is being touted as the world's first commodity exchange in physically settled diamonds. This means that the seller must deliver actual diamonds to the buyer and not merely settle the trade in cash.

On the exchange's platform, accredited investors can buy and sell diamonds at wholesale prices, its chief executive Linus Koh told The Straits Times yesterday.

"The exchange allows accredited investors to trade in physically settled diamonds with full price transparency in a regulated environment, for the first time," he said.

The wholesale price is the price at which diamonds - freshly cut and polished from rough stone - are sold to jewellery manufacturers.

Until now, to invest in diamonds, investors would usually have to buy them through a jewellery shop at retail prices - with a mark-up.

The opening of the exchange, based in PSA Building in Alexandra Road, represents a huge shift in the way diamonds are traded and the most significant change in modern diamond trading practices, said Mr Alain Vandenborre, SDiX executive chairman and founder.

At present, diamond trades are mostly negotiated directly between a buyer and seller. With the electronic platform, however, the highest bid price and the lowest selling price will be shown in real time. The prices of trades on the exchange will also be reported.

Diamonds can be traded on the exchange from Monday to Friday between 2.30pm and 6.30pm. Investors wanting more information can visit www.sdix.sg/.

The diamonds will first be certified by the Gemological Institute of America before they are traded on SDiX, and will be stored in vaults.

The exchange hopes to offer more sophisticated products down the track. Any accredited investor who has an account with a brokerage registered with the exchange can trade on it. The exchange's broker members include UOB Kay Hian, Linear Investments and Richcomm Global Services.

Temasek Holdings has invested in the SDiX through venture-capital unit Vertex Venture Holdings.

The pool of participants using diamonds as a trading, investment and hedging vehicle has room to grow, said Mr Koh.

Of the annual batch of freshly cut wholesale diamonds, only 3 per cent is bought as a collectible item or for investment. The other 97 per cent ends up in the hands of firms for processing into jewellery.

In contrast, out of the US$100 billion of refined gold produced by smelters a year, 40 per cent ends up as an investment or collectibles.

Also, about US$4 trillion of gold derivatives are traded a year but until now, there has never existed the potential to do this with diamonds, Mr Koh added.

Mr Esmond Choo,senior executive director UOB Kay Hian, said he sees a high level of interest from Singapore and around the region.

A spokesman for Foundation Jewellers said the launch will have some impact on the firm's diamond business. It sells rough wholesale diamonds to investors at low mark-ups. "Investors have to know the quality of the diamond they are buying. If it's youngsters, they'll likely go (to the exchange)," she said.


This article was first published on May 6, 2016.
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