GemShares, a Chicago-based financial firm, has put into
registration a physical diamond trust that follow by eight months
or so the first round of news suggesting the firm was looking to
patent a process for having diamonds become tradable
The GemShares Physical Diamond Trust sets out to reflect the
wholesale price of diamonds included in a fungible basket-called
the "GemShares Global Investment Grade Standard Diamond
Basket"-minus expenses, according to the filing submitted to
regulators this week.
The filing is vague on the details. While it does say that each
basket will consist of three "weight classes" of diamonds-each
class comprising gems that meet specific weight criteria-it doesn't
say what that criteria is or what the total weight of each basket
It also fails to disclose the custodian of the diamonds, or how
much it will cost investors to own shares of the trust. It does say
that only authorized participants will be allowed to redeem shares
for diamonds-an arrangement that seems akin to the way the SPDR
Gold Trust (NYSEArca:GLD) is organized. GLD only allows redemption
for physical gold for lots of 100,000 shares or more.
Diamonds neither have the financial history of gold nor do they
work as a hedge against a falling currency, IndexUniverse's Stacey
Brorup pointed out in a blog last year.
In fact, only 30 percent of mined diamonds are of gem quality,
meaning an investor who buys into GemShares' trust would in theory
be missing out on 70 percent of the market. Natural diamonds are
also used industrially.
Still, GemShares is not the first to plan a physical diamond
ETF. Rye Brook, New York-based IndexIQ, too, put a diamond ETF into
registration a year ago.
"The shares are designed for investors who seek a cost
effective, transparent and convenient way of making an investment
similar to an outright investment in physical diamonds," GemShares
said in the filing.
"For many investors, transaction costs related to the shares
will be lower than those associated with the purchase, storage and
insurance of physical diamonds," it added.
Diamonds included in the trust must meet certain physical and
optical standards, as well as be a conflict-free gem, the filing
said. No ticker was disclosed.
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