Diamond polishing
A craftsman checks the shape of a diamond at the polishing department of a diamond processing unit at Surat in Gujarat. REUTERS/Amit Dave

The world's first diamond futures exchange will begin trading in India on Monday, said a BloombergQuint report on Monday.

The exchange will enable Indian companies to better hedge price risks for the precious stone. India is the largest producer of cut and polished gems.

"Indian manufacturers most require this type of financial product," Sanjit Prasad, managing director of the Indian Commodity Exchange Ltd, told BloombergQuint. India carries the price risk of holding huge inventories of cut and polished and rough diamonds, he said.

The exchange is being backed by companies like Reliance Capital Ltd and MMTC Ltd. It is expected to start trading in 1 carat/100 cent contracts and will eventually add 50 cent and 30 cent contracts, Prasad was quoted as saying.

The establishment of the futures exchange is the result of two-and-a-half years of planning and talks with the Ministry of Finance and the Securities and Exchange Board of India, Prasad said in the report.

The report said that Indian diamond cutters polish about 14 out of every 15 of the world's gems and imported about 153 million carats of rough diamonds in the financial year ended March 31. Polishers source their gems from De Beers, the world's biggest diamond producer, and also through direct imports from some producing nations.

Sellers on the futures exchange will need to get their diamonds certified by the De Beers-promoted International Institute of Diamond Grading and Research and will get credit in electronic form equivalent to the carat deposited, according to the exchange.

The exchange has 20 large diamond companies on its membership rolls and expects about 45 sightholders of De Beers to transact on the exchange platform, Prasad told BloombergQuint.

Members of the diamond futures exchange include companies like Rosy Blue (India) Pvt Ltd and Kiran Gems Pvt Ltd.