Check the financial pages of the newspaper, and you’ll see futures listed for beef, cotton, oil, coffee, and soybeans—not to mention gold, silver, and platinum. But not for diamonds.

Now some want to change that. Price sheet publisher Martin Rapaport and PolishedPrices.com‘s Charles Wyndham are separately, but vocally, calling for diamond futures, and Rapaport introduced a preliminary proposal at the diamond association meeting in Amsterdam, the Netherlands, in June. Afterward, Antwerp World Diamond Center (formerly HRD) held a daylong seminar on the topic, sponsored by ABN AMRO bank.

“I can’t think of any commodity that doesn’t have a derivative,” says Wyndham. “And at the end of the day, diamonds aren’t different from any other commodity.”

Yet, many in the trade, recalling past experiences with outside investors, are wary. In Amsterdam, Jeff Fischer, president of the International Diamond Manufacturers Association, compared the claims of those backing derivatives to the Twilight Zone episode where a seemingly harmless alien comes to Earth with a book called To Serve Man. Which is actually a cookbook.

No one doubts that derivatives have become standard for other commodities. A futures contract lets buyers hedge against future price gyrations by agreeing to purchase a commodity for a length of time at a fixed cost. Investors also use them to bet on a commodity’s price direction, generally without requiring physical delivery of the item.

Over the years, there has been talk about bringing this mechanism to the diamond market, but it has intensified with De Beers’ declining market share, as the industry has grown less unique and more transparent.

Investors are interested in the diamond market because “the supply-demand curve is very advantageous—growing demand and little new supply,” notes Stéphane de la Serre of Diapason Commodities Management, which is administering a fund of million-dollar-plus stones (see sidebar).

De la Serre adds that investors also are looking at diamonds as a way to diversify. “It is a market that moves with its own logic,” he says. “Investors don’t want to invest in assets that move in sync with stocks and dollars. They like assets with their own specific behavior.”

Meanwhile, some bankers feel futures will bring outside liquidity to the trade. In Amsterdam, G. Loet Kniphorst, global head of ABN AMRO’s International Diamond and Jewelry Group, argued that industry bank debt “has reached its peak” and that the industry needs “alternative funding.” He noted that, although the industry’s supply-demand outlook is positive, the banks may not provide the support it needs.

De la Serre agrees, noting that “diamond prices have gone up, but compared to other hard assets like real estate, the gains have been comparatively modest.”

To properly trade diamond futures, there needs to be a way to price them. And that’s where the issue gets complicated. Rapaport wants the prices set by Internet tenders of certified 1.00 ct. H–K stones, settled by cash and run by his company. The tenders will be open to everyone, including consumers, and are meant to create a regular index number that can be traded as a futures contract.

Of course, these tenders don’t cover the entire diamond market, as even Rapaport acknowledged in Amsterdam. “By tagging three birds, you get a sense of their migration,” he says. “We are tagging part of the industry.” He foresees, eventually, “Hasidic and Indian dealers day-trading in diamonds.”

Meanwhile, Wyndham wants any market to use his PolishedPrices list, which tallies transaction prices based on information supplied by wholesalers. “What form the derivatives take, I don’t know, I am not an expert,” he says. “We just want to create a tool.”

So far there has been a mixed reaction from the trade, including De Beers. Jonathan Oppenheimer, the son of chairman Nicky Oppenheimer and a company board member, was recently quoted by Mineweb: “We are not saying yes and we are not saying no. We are saying that we are ready to understand diamond futures and to unpack [the concept].”

Stephen Lussier, director of external affairs, told JCK: “If a system is created and is looking for industry support, we should ask questions. Is it based on the entirety of the diamond business, or just a narrow range? If you have a narrow range, that is open to significant manipulation.”

Stronger concerns have come from industry associations. First, there are misgivings about transparency. The proposals include regular publication of diamond prices in newspapers, which would mean further “commoditization” of diamonds.

Wyndham argues the age of transparency has already arrived, noting that Blue Nile publishes its margins. “There are Web sites that tell you how much a car costs before you go into the showroom,” he says. “You can’t hide information. If you are that concerned, that means you are charging too much.”

Rapaport also drew fire because he would not only run his commodity exchange but also continue to publish his famed price sheet—a sheet that, despite his protests over the years, is as known for influencing prices as it is for reflecting them. This would be a possible “conflict of interest,” delegates in Amsterdam felt. But Rapaport countered that his plan would have to be approved by the U.S. Commodities Future Trading Commission, which would rule on those issues. “Whatever the government tells us to do, we will do,” he says.

Perhaps most importantly, there are apprehensions about a repeat of the late-1970s investment boom–turned–bust—which included a short-lived attempt to start a diamond commodity exchange.

De la Serre argues the market has changed a lot since then: “Back then there were many scams, and it was completely un-transparent.”

Rapaport acknowledged he was “very concerned that the financial community guys will jump in and do all sorts of shenanigans and then say it’s all the diamond industry’s fault, when the only fault is their own greed.”

But Wyndham says he “just laughs” at such uneasiness. “That is not a rational argument,” he says. “If there is one thing about the diamond industry, it is made up of a bunch of speculators.”

Still, these “speculators” are committed to the diamond business. And for those who consider their gem inventories a long position, these fears are all too real. “If speculators prop up the price 10, 20, 30 percent, we don’t consider that real demand,” Fischer says. “That’s just speculative manipulation and not sustainable. We believe in gravity. What comes up, comes down. Why shouldn’t I be concerned about the downside? I wish someone would come and show that to me.”

Regardless of how the industry feels, Wyndham says “the one thing we know for sure is derivatives are going to come.” Perhaps—but it won’t be easy. Rapaport’s been working on his plan for 25 years. And despite the talk, there are no firm plans to go ahead with anything. “These are difficult things to do,” notes Lussier. “If not, they would have been done already.”