After the world economy will recover from crisis the foreground of diamond trade will be won by ventures aimed at turning these gems into an efficient investment instrument. DODAQ, the electronic diamond exchange in Antwerp, is the first venture of this kind. Alex Fray, its Chief Financial Officer, has found time to answer the questions posed by the Rough&Polished Information Agency.

Please tell our readers, what is the major concept behind DODAQ?

DODAQ is the only fully automated electronic polished diamond exchange facilitating trade and investment in diamonds using the same pricing mechanism as other electronically traded commodities. The concepts underpinning DODAQ are price discovery, transparency and efficiency, both to benefit the existing industry participants, and also allow diamonds to be fully realized as an asset class for investors by providing a liquid and efficient marketplace for entry and resale of asset holdings.

Have there been any deals made at your diamond exchange and can you give some figures already to illustrate?

DODAQ launched in February 2009 and trading volumes have been rapidly increasing month on month. DODAQ clients include both diamond industry participants and also investors. We have not released trading data to date but will be doing so in the near future and will be happy to share this with you at that time. As volumes increase, liquidity improves and efficient market prices are being realized for individual categories of polished certified diamonds.

On your Website you say that ‘every diamond must first be received into the vault before being published on the exchange so its authenticity and existence can be assured.’ This may involve certain difficulties for overseas sellers, don't you think so?

On the contrary, DODAQ is specifically a global marketplace and offers significant efficiencies to overseas buyers and sellers. Already our client base is global with trades executed between different participants from different countries and continents. All diamonds must be received with certificates to one of the DODAQ vaults in Geneva and Antwerp for a genuine cash market with instantaneous settlement to be possible. This is the same process used in physical cash markets, for example gold, where the physical asset has to exist to underpin the terminal marketplace.

What kinds of certificates are accepted by your diamond exchange?

Currently DODAQ allows GIA, HRD and IGI certificates for Round polished diamonds to be traded. Different certificates are traded in separate markets.

As it seems, the key problem for a transparent diamond market is a universal certification system. If some of your buyers will later decide to re-sell his or her diamond in some other place and will eventually get some local certification which will be inconsistent with the one obtained at DODAQ, it may result in a conflict of price. Could you please give your comment to this?

There are already several different certificates offered that are perceived differently by the market, and therefore different values are assigned to each one. DODAQ allows people to trade different certificates in separate markets and the market will discover the price for each certificate. The three certificates offered through DODAQ are all globally recognized and we do not see a conflict of price being a problem. Many commodities are traded on different exchanges at different prices and they are not always fungible. Whether the market decides to conform to one certificate or continue to use several is not for DODAQ to decide, and will not prevent an efficient market from developing.

Your diamond exchange seems to be the first venture which is aimed to attain price transparency in the industry. Is there any risk it will result in a market revision of polished prices in some way?

Any revisions will be towards the efficient market price, which simple economic theory demonstrates will promote the highest value of trade. A transparent market will stop transaction prices from over and undershooting the efficient market price and enable a fair value price to be reached. This is true price discovery and rather than a risk we see this as a key benefit to the DODAQ exchange and moreover a necessity for the industry.

Why do you limit your business to round-cut diamonds only? Are you going to include other cuts at a later stage, including fancy diamonds?

We have focused initially on the highest volume and most liquid portion of the market, namely round polished diamonds. This is the best segment of the diamond market to focus on to achieve an efficient market and represents over 42% of all polished diamonds. There is nothing to stop us expanding the scope of DODAQ to include other categories, shapes and sizes in the future. This decision will be driven by customer demand and liquidity considerations.

Will it be possible to use your experience in some future time to set up a similar exchange for rough diamonds? If the answer is negative, why?

The picture for rough diamonds is slightly different as they are not certified in the same way as polished. At DODAQ we are entirely focused on the polished diamond market at present.

Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels