ICEX to commence futures trading in polished diamond by December

Begins mock trading with large diamond traders on board

Four days after the government notified new commodities to be allowed for futures trading, the Indian Commodity Exchange (ICEX) on Tuesday began mock trading in polished diamonds. The response has been good.

Diamonds are one of six commodities the government notified on September 28 as allowed for futures, with prior approval from the Securities & Exchange Board of India (Sebi).

ICEX had sought Sebi approval for launch of futures trading in polished diamonds about a year before. As polished diamonds was an unlisted commodity, Sebi held back. ICEX says it has got in-principle approval to launch mock trading, which it staretd on Monday.

“Till the second day on Tuesday, we received participation from over 50 clients, out of an excess of 100 unique client identities created so far. After completion of the mock trading, we will submit a report to the regulator, following which the final approval for commencement of futures trading would come,” said a senior ICEX official.

Apart from diamonds, the government notified tea, eggs, cocoa, pig iron and brass where futures trading could be initiated. With this, the government has allowed such trade in 91 commodities.

According to the ICEX official, the exchange has the required minimum membership base of 50, of which over half a dozen are large diamond processors and sightholders in India.

“We have received membership applications from many large diamond traders, including sightholders (authorised bulk purchasers of rough diamonds from De Beers, the world’s prime supplier of these). This gives us the confidence of setting a benchmark price, with a transparent price discovery platform, in the world,” said the exchange official.

The regulator is taking more time for granting approval in polished diamond futures. “It is difficult to set a benchmark. Sebi is studying all aspects before granting approval for futures trading on ICEX. Once Sebi is fully convinced, it would approve the contract,” said a Sebi official, on the sidelines of a conference here on Tuesday.

According to an exchange official, ICEX also plans to launch futures trading in paddy. Early this year, it had a rights issue to raise funds to meet the regulatory requirement of minimum net worth of Rs 100 crore. The issue was fully subscribed.

The exchange discontinued operations in 2014, as the commodity transaction tax, imposed in July 2013, had hit its volumes. According to regulations, if a commodity exchange’s operations remain suspended for 12 months, the regulator may issue a notice and then cancel its licence. Earlier, the then commodity regulator, Forward Markets Commission, had sent ICEX such a notice.

The exchange has diverse shareholders — MMTC, Indian Potash, Kribhco and IDFC Bank, with Reliance Capital, part of the Anil Ambani-led Reliance Group, being the largest shareholder. Government-owned MMTC recently reduced its stake from 26 per cent to 15 per cent, to meet regulatory requirements.

The exchange plans to re-commence futures trading by the end of the current calendar year, the exchange official said.