The trade has complained about the Rapaport price list for as long as it’s been around (i.e., 40 years). The grumbling tends to get louder during tough times, like we face now.
Given all the pricing information out there, it’s surprising that the Rap sheet still holds the enormous power it does. This may be due to inertia—the list has become a universal trade language and holds a tremendous first mover advantage, as they say in the Internet biz. But the trade has also never agreed on an alternative. This summer, the Israeli exchange proposed a twice-yearly price list that would serve as a benchmark. But that wouldn’t provide much actual price information, and that need clearly exists.
Other lists, based on wholesaler listings or online info, have not quite taken off. Part of the problem is the trade remains ambivalent about disclosing its information, worried that if customers knew their margins, they would chip away at them. That’s true when wholesalers sell to retailers and when retailers sell to consumers. And yet today, information has become much harder to control. Even De Beers had an issue with its confidential price book leaking to sightholders.
So let’s look at other industries. Last year, while reading about the controversy over the gold fix, I found to my surprise that diamonds are not the only commodity with a controversial price list. Wrote The Economist:
“The oil price” has a comforting ring of clarity about it. But in reality many benchmark prices for oil and other commodities are merely estimates based on incomplete information from unregulated, illiquid markets. They rely at best on a seasoned reporter’s ability to interpret what his sources tell him about bids, offers and deals, and at worst on a gullible greenhorn’s guesswork.
A government report assessing oil price reporting agencies (PRAs) almost sounds as if it’s talking about the Rap list:
Amongst the PRAs, Platts prices are perceived to be firmly entrenched in the contractual fabric of the industry…. There is considerable inertia in the industry that sees even companies that are highly critical of Platts and its methodologies continuing to use it as a price reference source in their deals.
The various oil price-reporting organizations eventually agreed to a code of standards, which can be seen here. Bedrock principles include: robust governance, avoidance of conflicts of interest, publication of methodologies, notifications when methodologies change, procedures to determine that supplied information is accurate, observance of confidentiality, and a plan in case of disruption or disaster.
These are worthy ideals and could provide frames of reference as the industry looks at this issue going forward.