NEW YORK's diamond dealers club, which banned Martin Rapaport in the late 1970s. He has since served on the club's board and as an envoy to Sierra Leone, negotiating with one-time rebel leader Foday Sankoh on behalf of the US. “Planes would come in from Colombia with cash, the cash would be transferred to diamonds and guns and the diamonds would show up in Switzerland.” Rapaport describes the Kimberley Process as “greenwashing on a massive scale.”

NEW YORK's diamond dealers club, which banned Martin Rapaport in the late 1970s. He has since served on the club's board and as an envoy to Sierra Leone, negotiating with one-time rebel leader Foday Sankoh on behalf of the US. “Planes would come in from Colombia with cash, the cash would be transferred to diamonds and guns and the diamonds would show up in Switzerland.” Rapaport describes the Kimberley Process as “greenwashing on a massive scale.”

 

Martin Rapaport: Bomb Threats, Diamonds & Bullet Proof Vests

Issue 59, October 2013

In rented cars and a bullet proof vest, Martin Rapaport has taken a perilous route to becoming the diamond industry’s most influential body. Every week his Rapaport Group publishes the ‘Rap List’ of diamond prices, which is so widely used by dealers that it has become the global diamond price benchmark. His critics, who refer to him as Napoleon Bonaparte, claim he dictates the market.

“I learned the business bottom-up,” he tells Global Mining Observer. After studying in Israel and growing up in Miami Beach, he became an apprentice cleaver. “If you understand the structure of a diamond, you can groove in and then flick, and the diamond splits along its seam.” If the cleaver calls it wrong, the diamond shatters instead.

After a year of cleaving and sorting, he returned to the US to open a brokerage business. “I didn’t want to hang out on the East Coast, because I was afraid of all the drug-dealers,” so he zigzagged the West Coast changing rented cars, “so nobody would hit me on the head for my little briefcase of diamonds.”

In the early 1970s, grading reports were only given to the highest quality stones. High inflation and negative real interest rates however spurred an investment frenzy. Grading reports became widespread, standardising the market. Using index-cards, a cassette-based IT system and a grid pinned to his office wall, Rapaport began collating data. “I had a couple of girls working for me and I said, anytime you see a buyer put a red pin in the box and anytime you see a seller, put a green pin in the box. Then you get on the phone.”

As a broker, Rapaport collected a wealth of price data and began publishing a price list. “It was very popular,” he says, “because prices were going up tremendously. That was all great.” But when interest rates shot up, diamond prices reversed. “Money ran the other way. The market crashed and I kept publishing lower prices. People didn’t like that very much.”

The World Federation of Diamond Bourses banned the printing of price lists and Rapaport was thrown out of the New York Diamond Dealers Club. The US Free Trade Commission ordered that he be allowed back in, allegedly in exchange for information against De Beers. Rapaport wore a bullet proof vest for 2 years and received bomb threats at his office. “You can’t imagine the stress there was.”

His price list however had become embedded. Rather than dealers negotiate the price of each grade in turn, they simply agreed a discount to the listed Rap price. “When you grade diamonds properly and standardise a certain quality, you’ll see that there’s a rational relationship. They monotonically increase in preference value, so D is always worth more than E. There was a structure I was able to perceive and I created a group system for doing that. No-one had ever seen that before. It’s practical and it works.”

Rapaport has considered a similar system for coloured gemstones, where the added complexity of colour is less easy to grade, with bigger efficiencies to be gained. “You want pinkish-purple but in Thailand they may want purply- pink.” By cornering mined supply, he says London-listed Gemfields is becoming the “principle pricer.”

From auctions to news to handling, Rapaport’s interests are sprawling. He has served as an envoy to Sierra Leone and is an outspoken critic of the Kimberley passport process, which he says rubber stamps diamonds from wartorn countries. He is believed to be working on a diamond futures exchange, but is “NDA’d up to the wazoo.” Over 1m diamonds valued at $6.5bn are meanwhile listed on RapNet, the world’s largest diamond trading platform.

Each arm feeds information to the Rap List, which is set by a proprietary system based on the highest New York asking price. “I think rough prices will come down,” he says, “because they’re too high relative to polished.” He adds that the dollar is overvalued. “There are problems with printing money until you run out of ink, but we live for today often and the long term view is not that relevant when you’re trying to keep your economy going.”

Rapaport shrugs off charges that he moves the market at his whim. “When we move the Rapaport price it’s seen as confirmation. I never try to over-control the markets. I can’t not go down with prices, or not go up with prices. People negotiate. It’s a benchmark.”

Disgruntled dealers add that the transparency created by a central list has collapsed margins by folding retail into wholesale prices. “If you were a travel agent, you’d probably get pissed off with Expedia,” Rapaport retorts, “but it’s the way the world is turning. I believe in transparency. What’s good for the goose is good for the gander.”

“If you understand the structure of a diamond, you can groove in and then flick, and the diamond splits along its seam.”
“If you were a travel agent, you’d probably get pissed off with Expedia, but it’s the way the world is turning.”

The diamond bourse in Antwerp, where Rapaport trained as an apprentice cleaver before returning to the US.

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