Top diamond firms back pioneering exchange
A Bermudian-based operation is set to revolutionise the global diamond trade by setting up a pioneering electronic exchange for trading in the precious commodity
The Diamond Standard Exchange is the brainchild of American Cormac Kinney, a celebrated entrepreneur and software designer with a lengthy track record of successful start-ups and technology businesses.
Mr Kinney, who was a panellist at Bermuda Tech Week 2019, said 32 of the world's largest diamond companies have verbally committed to becoming members of the exchange, subject to finalising the paperwork, and “are in the process of onboarding”.
A high-end American jewellery retailer is the most recent company to commit, Mr Kinney said. Aside from retailers, members include “sightholders”, who buy rough diamonds directly from mines and normally cut the diamonds — and brokers/dealers/traders, which deal mostly in polished diamonds.
Mr Kinney said he expects that the member-owned exchange will be operational by the end of the year.
“We are reinventing the diamond supply chain,” Mr Kinney says. “This exchange in Bermuda will be the global exchange for centralised liquidity for diamonds.
“No diamond exchange in the world has a ‘bid and ask', and a clearing mechanism. That's what we have created.”
Mr Kinney is chief executive officer of Diamond Standard Ltd, a Bermudian-incorporated company that will be a member of the exchange and act as “market maker” for the buying and selling of loose diamonds.
Market makers exist on every exchange; their role on the diamond exchange will be to give participants a quote, an actionable bid, on every diamond up to two carats.
Diamond Standard Ltd will also sell a bar containing ten diamonds, and a coin containing three diamonds.
Mr Kinney said: “We deliver the bar, it's yours. You can put it in your sock drawer, or leave it at the bank.”
The entrepreneur also leads Bitcarbon Technologies Ltd, which will embed the bars and coins with a wireless encryption chip that enables global authentification, and stores a blockchain token.
“We are creating an interface between the digital and the physical, we are revolutionising the diamond industry and creating a new asset,” Mr Kinney said.
Purchasers may deposit their coin, or bar, with a custodian, who will store it in a “smart” cabinet, but the purchaser will keep the digital key to the Bitcarbon token. Owners can sell their token at any time but when they do, they also sell the coin or bar; the two are inseparable, the company said. The digital token can also asset-back a digital contract.
The exchange has applied to be overseen by the Bermuda Monetary Authority, while the Bitcarbon tokens cannot be issued until receipt of a Digital Asset Business Act (DABA) licence from the BMA.
While awaiting approval to begin operating, Mr Kinney said some $650 million in “indications of interest” have been received in relation to his company's diamond commodities, mainly the bar. Mr Kinney said those “intentions to buy” were “very, very conditional” at this stage.
First-day trading prices have been set at $100,000 for the bar, and $10,000 for the coin, Mr Kinney said. Going forward, the coin and bar will each continue to have the same gemological content as on the first day they were traded.
Today, Mr Kinney said, anyone seeking to purchase a diamond must visit a jewellery store or pawnshop; there is nowhere else to engage with diamonds at the retail level, although there are “listing venues”, bulletin boards that allow diamond sellers to start conversations with potential buyers.
Once the exchange begins operating, he said, anyone will be able to engage a broker to purchase or sell diamonds on their behalf.
As the exchange is both transparent and regulated, Mr Kinney says, purchasers can be assured they are paying a fair market price for diamonds.
He said: “The first result is that we have really cleaned up the diamond industry by the firms all agreeing to ethical standards, fair trade, no blood diamonds, just all natural diamonds, no synthetic diamonds. The exchange will be regulated — that has never existed in this industry.”
Mr Kinney said an investment bank was hired to raise $25 million for the new venture. “Half is committed,” he said.
The exchange has attracted an investor, Miami International Holdings, which recently acquired a controlling interest in the Bermuda Stock Exchange. The parent company of five other regulated exchanges, including Securities Exchange Commission and Commodity Futures Trading Commission entities, will provide tech monitoring, risk management advice and regulatory support, Mr Kinney said.
Diamond Standard Ltd has opened an office in Bermuda, and has hired James Campbell as its chief financial officer. He has also been named as CFO of sister company Bitcarbon Technologies.
Additional positions are being advertised at careers.diamondstandard.co.
Mr Kinney said Bermuda was chosen to be the site of the new ventures after a worldwide search.
He said: “We hired Deloitte to do a global survey and, because of the DABA Act, we came to Bermuda.
“The island is geographically convenient, and there is the availability of skilled staff who speak English, but it's because of DABA. We wanted and needed legislation to both license the token and oversee the exchange.
“The SEC in the US is not ready for this. They would look at us as a security, and it would have taken for ever.”