When the general assembly of the World Federation of Diamond Bourses (WFDB) met at the World Diamond Congress in Moscow last year, the South Korean Diamond Exchange was accepted as the organization’s newest member. With its addition, there are now 29 WFDB- bourses in 22 countries affiliated to the international diamond trade’s largest representative body. They report a total membership of about 13,000 diamond dealers, but are estimated to serve the interests of more than 25,000 traders.
The network of diamond bourses is growing. Over the past five years, organizations from Moscow, Istanbul, Sydney and Panama City have joined the WFDB, and there are others in the wings. They include a bourse in Toronto that has been established but still has not formally requested WFDB membership.
But as the volume of diamond bourses grows, the amount of dealers using their trading floor is dwindling. Diamond trading most certainly is taking place, but it is predominantly happening in the offices that surround them, and increasingly on the Internet.
In fact, in today’s business environment it is Internet and other forms of cutting-edge communications that are posing the greatest challenge to the traditional diamond exchange. And it is largely younger diamantaires, imminently more comfortable that their seniors with the new technologies, who are leading the way. These youthful members of the trade do not necessarily deride the importance of face-to-face contact, but they do ask whether it is always necessary to use a brick and mortar trading floor, when a few computer clicks may sufficient to locate the exact gem required.
The situation differs from bourse to bourse. At some, the trading floor remains vibrant, and at others it has been eliminated altogether. In larger trading centers, like New York, Antwerp and Ramat Gan, there remain a large number of individual brokers who rely on the physical facilities provided to them by the diamond exchanges.
In the opinion of Moshe Mosbacher, president of the Diamond Dealers Club of New York, the physical space provided by the bourse remains essential, but it no longer can be considered a comprehensive solution in the modern business environment. “A dramatic shakeup is in order,” he said. “If we do not adapt, we run the risk of becoming extinct. We need rethink the role played by the diamond exchange. The DDC, for example, should not only remain relevant to diamond dealers in New York, but it must be an invaluable asset to a wider public in the diamond and jewelry trades, right down to the retailer.”
“Thirty years ago, when I joined the industry,” recalled Mr. Mosbacher, “New York wholesalers would bring the loose polished diamonds into the city, and much of that would be displayed on the DDC trading floor. Buyers would come in from around the country to resupply their jewelry factories or retail stores.” But, said the DDC president, following De Beers’ introduction of its Supplier of Choice policy in 2000, the business came to be dominated by a smaller number of larger players, who were not only able to obtain rough supply, but also had the capital means to develop business downstream. They did not always consider the diamond exchange as a primary tool for reaching the market.”
Then things changed once again. “The Internet really reshuffled the pack,” Mr. Mosbacher said. “It enabled the creation of diamond trading platforms, upon which not only large numbers of diamonds could be listed, but buyers could run very specific searches to find the goods they need. To no small degree this undercut the strategic advantage enjoyed by the larger polished diamond distributors, because buyers could search the market for the best possible deal.”
“This was our starting point,” Mr. Mosbacher said. “Many diamond exchange members had considered the Internet as a threat. But I and my colleagues believed that it provides an opportunity for growth. By creating our online trading platform we could bring in the jewelry trade as members, rather than as simply clients.”
Mr. Mosbacher is quick to point out that the DDC did not invent the concept of the diamond trading network. Others exist, he said, but they are not able to provide the support and security inherent in the structure of a diamond exchange. These includes strict rules of membership, a structured trading environment, and an internal arbitration system which enables the rapid and inexpensive resolution of trading disputes between members, not only from the bourse in question, but from all bourses affiliated to the WFDB.
A key component of the DDC’s development program was the establishment of a new website, which was launched earlier this year. It provides a public face for the DDC, and also is the access point to DDC’s secure online trading platform.
Access to the online trading facility is available only to DDC members in possession of a user name and secure password. For members living outside of the New York area, who do not come into the city on a regular basis, the DDC established a new class of web-trader membership. From the comfort of their own businesses and homes, and even while on the road, web-trader members can buy and sell diamonds 24 hours a day, within a recognized bourse environment.
A key feature of the DDC Secured Online Trading Platform is that the DDC secures both payment and delivery of merchandise for transactions that are completed online. This is made possible because DDC members using the platform have established credit worthiness with the DDC by providing financial guarantees. Many of the web-traders are bonded members, who establish their credit worthiness by providing the DDC with underlying securities.
The introduction of the online trading facility required the DDC top rethink its entire administrative and service structure, particularly in light of the fact tha,t because the geographic boundaries were being expanded, a significant increase in membership is expected. A position of Director of Member Services was created, with the goal of coordinating the outreach program and developing new sets of services for the members. The DDC official who fill that position today is Louis Rohde.
In late April the DDC concluded an agreement with Transguardian, a California-based secure logistics expert and software developer, according to which DDC members will be able to ship packages of diamonds and jewelry at preferred rates, using what has been called a Concierge Shipping Service. The agreement, which was designed to complete the DDC’s new secure online trading platform, also includes TransGuardian’s organizing a credit risk insurance policy for transactions managed through the DDC’s Bonded Trading System.
TransGauardian will serve DDC members wherever they are located in the United States and abroad, but it has also set up a package drop off and receiving kiosk near the entrance to the DDC trading floor on the 10th floor of the 580 Fifth Ave. Building. DDC members can log in and generate shipping labels with insurance, and there will be daily pickups by the U.S. Postal Service, FedEx and UPS.
TransGuardian has also integrated its multi-carrier shipping software to the DDC website, which allows for the management of insured shipments to and from web traders, as part of the DDC’s Bonded Trading System.
DDC vice president Basant Johari insists that it is imperative for diamond exchanges to catch up with changes in trading that are taking place across the global diamond business. “Trading is done differently today; everyone is online and the DDC needs to be there, too,” Johari said. “Our aim was to investigate how we could help our members to better compete and how to provide them with a trading advantage.”
“They need to have connections to jewelry retailers, and the new platform aims to facilitate that,” Johari said. Our members sell to retailers but communication needed to be improved. Retailers were not part of the DDC, but we aim to change that.”