Rapaport presents futures proposal at DDC

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Rapaport presents futures proposal at DDC

By Susan Thea Posnock

August 30, 2007

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New York—The trading floor of the New York Diamond Dealers Club (DDC) was packed yesterday afternoon, as Martin Rapaport briefed the trade on the state of the diamond industry and his plan to develop a diamond futures exchange.

Members of both the DDC and the Diamond Manufacturers and Importers Association listened as Rapaport, who is chairman of the Rapaport Group, reiterated his plans to hold the first certified-diamond auction from Sept. 17-20, the first step in creating a futures market for diamonds.

Rapaport cited numerous factors contributing to a difficult period for the diamond industry, which is facing record debt and a lack of liquidity. He said his proposal could attract those in the financial sector to the diamond industry, opening up opportunities.

Despite mumblings in the audience of who would benefit from the initiative and what the impact would be on the market, Rapaport said he's committed to making sure those in the diamond district have an opportunity to benefit.

He said that the process will take a year and a half to two years to get going, and that while he believes in it, it may or may not work.

He said the benefits relative to risk are increased trading, more financing for the industry and liquidity.

"There will be opportunities for people to make money with diamonds—I daresay buying and selling diamonds in a much more efficient way," Rapaport said.

The auction will offer round-cut 1.01-carat and larger diamonds that have been selected, approved and guaranteed by Rapaport and that are accompanied by a Gemological Institute of America (GIA) grading report.

Diamonds chosen must be of D-K color, IF-VS2 clarity, Excellent to Very Good cut and GIA-graded stones. They will be available for inspection in New York. Bidding will take place online and will be restricted to the trade and financial institutions. Terms for the auction are spot cash, with a Free on Board (FOB) in New York and a 3 percent fee to the seller.

"I want to take us back to the old days when we sold diamonds for money," Rapaport said.

Rapaport will use the auction as a way to develop a transparent, government-approved price index for diamonds that would be the basis for the futures exchange.

As for its impact on retailers, Rapaport notes that price transparency already exists in a world with the Internet and companies such as Blue Nile.

"You don't need Rapaport's commoditization scheme to put out prices that consumers will look at and say 'Hey, this is the price, why am I paying Mr. Retailer more?'" he said.

How retailers compete in this environment depends on the added value they bring to the process, he said.

"Price is not everything, but with price transparency you have to add value," Rapaport said.

Yesterday's presentation was part of Rapaport's continued efforts to present his proposal to the trade. In an e-mail sent out this morning, "Message from Martin Rapaport about Certified Diamond Auctions," he wrote that the deadline for submitting diamonds for inspection for the first auction is Sept. 6.

"I believe that it is vital for every member of the diamond industry to have an equal opportunity to participate in the auctions, which will ensure fair, honest, open, efficient and competitive diamond prices," he wrote. "Everyone is invited to either submit their diamonds for sale, or buy diamonds. The only qualifications are that the diamonds pass our careful inspection and participants comply with the U.S. Patriot Act requirements."

For more information, e-mail auction@diamonds.net or visit the Rapaport Certified Diamond Auction Web site, Diamonds.net.

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