I’ve been curious about the Integrated Nano-Science and Commodity Exchange (INSCX) since it was announced in February 2010 (first mentioned on this blog, Feb. 3, 2010) and on learning that the CEO (Chief Executive Officer), Charles McGovern, would be presenting at the Nano Materials 2010 Conference (June 8 – 10, 2010, London, England), I sent him a series of questions about this new exchange. He very kindly answered those questions and added more questions and answers for a comprehensive view of the proposed INSCX.
I am posting all my questions (italicized) and many of the additional questions in this series of interview postings. (The entire set of questions and answers will be available at the INSCX website prior to the Nano Materials conference in June.)
In the document I received from Charles, there is a legal disclaimer which I’m reproducing here,
This document reflects views held by INSCX exchange in response to questions posed by the interviewer. The replies should not be construed as a formal invitation to use engineered nanomaterials for the purposes of speculative investment. INSCX exchange is primarily a commercial exchange which permits non-commercial memberships for the purposes of agency broking and qualified speculative investment fully appreciative of risks to capital committed for such purposes. In addition the exchange expresses the view that comments other than those expressed herein listed in any published interview should be noted as attributable to observations expressed by the interviewer where appropriate.
So, here is Part 1 (this part is a primer for someone like me, someone who doesn’t know much about commodity exchanges):
Q: I have a nebulous understanding of commodities exchanges. Could you explain the purpose of a commodity exchange and how it differs from a stock exchange?
A: The fundamental difference between a stock and a commodity exchange relates primarily to what is permitted for trade. A stock exchange such as the New York Stock Exchange (NYSE) facilitates trade in equity, shares of listed corporations such as IBM, whereas a commodity exchange, the Chicago Mercantile Exchange (CME) for example, facilitates trade in commodities, fuels, grains, agricultural produce and so forth.
Q: Why a Nano Commodity Exchange now?
A: The answer relates to what engineered nanomaterials are, and the role commodity exchanges play in the business world. We have filed intellectual property to create a commodity exchange dedicated to facilitate trade in accredited materials derived in whole or in part from application of nanoscience and nanotechnologies.
Nanomaterials, while being precision engineered, are nonetheless in a commercial context raw materials, in much the same context as Crude oil, wheat or metals are raw materials used to manufacture, or refine fuels, flour, or base metals used across many sectors of industry. Many commentators have trumpeted the commercial potential of nanoscience and nanotechnologies, but few have focused on what global business actually needs to make industrial use the technology platform a commercial reality.
Q: What do you mean by a Commercial Reality?
A: There is no doubt that nanoscience and nanotechnologies are finding applications in today’s business world, but in a fragmented manner which threatens commercial sustainability of individual and collective nano‐business models. Common sense dictates that nanomaterials being the raw materials base of nanoscience and nanotechnology are regarded for what they are, namely raw materials used to further process toward application and/or product and not something because of scientific nomenclature that remains beyond the comprehension of global business leaders. Wonder solutions are nothing new in the business world, what translates wonder to commercial fact, i.e. world industry actually using the wonder solution as opposed to viewing with mere incredulity and of late some annoyance, is how a trading model can operate to use the wonder solution to make commercial progress whilst also serving to sustain any business model engaged in the supply of the wonder resource.
Q: What relevance then is a Commodity Exchange?
A: The role of any commodity exchange is to structure the trade process to facilitate the allocation of competing interest across resources and materials, raw materials or commodities to use the more general term.
Q: What is the business relevance of a commodity exchange?
A: The relevance of the commodity exchange is nothing new. Since the 16th century business has used the methodology of a commodity market to structure the trade processes in raw materials, whether it be metals, oils, grains or products. Industrial suppliers and purchasers of commodities use these exchanges to quantify price, material standard, indemnity and supply capacity, while national governments rely on these self‐regulating markets to shape legislation and supervise national interests in the allocation of raw materials resource. Capital investment bases its perception of risk/reward afforded any economic sector on first establishing the variables of price, supply capacity, indemnity and standard associated with the suite of raw materials any economic sector relies on to further manufacture toward application and/or end‐product. The methodology of a commodity exchange enables these competing interests to interact to ensure commercial cohesion.
Q: Can you provide an example?
A: Several could be provided. Imagine how the world economy would use grains, metals, oils or whatever without some organised process of trade? Imagine a giant such as Boeing continuing its commercial reliance on the raw material of aluminum in the absence of a commodity exchange where the raw material traded openly? A simple example to illustrate the relevance of a commodity exchange would be to assess the relevance in a common business activity, say a transport company reliant on fuel, or a refining company reliant on Crude oil. How could a refining company manage its affairs with cohesion if it could not quantify the commercial variables or price, standard, supply capacity or indemnification associated with Crude oil? Equally, how much would a transport company, reliant on say diesel fuel, a derivative of Crude oil, price a transport business model in a situation where no‐one could guarantee the quality, supply or price of either Crude oil or diesel? How would a capital lender or investor assess the commercial worth of either the transport business or the refinery, and more to the point what government reliant on Crude oil and transport to drive the economic progress of the economy could permit continuance of such as fragmented process or commercial interaction in the interests of sound economic management or societal benefit?
Q: Nanomaterials are different?
A: Exactly how are they different in a commercial context from any other raw material used in a process of manufacture, application or end product? Oil is a different raw material or commodity from wheat, electricity differs from metal, a carbon nanotube differs from Ti02, but all are raw materials used to make some application or product? Granted oil is refined into petrol whereas a Carbon nanotube is derived through CVD. Before the combustion engine arrived few outside of informed circles knew what refining meant as is the case now with CVD. The difference is I can call a broker to tell me the price of oil, I can source well over a hundred different grades if I so desire, the same for several metals or wheats and the exchanges where they trade ensures if I pay for something I am assured quality product, standard, indemnity, delivery whilst not having my business model held to the benign grace of a single supplier. I can also supply or source the material forward, unwind my currency exposure and access trade financing.
Within nanomaterials I cannot do any of this, as these facilities are provided through a commodity exchange, but yet as a business I am expected to transform my business model to rely of these as alternative raw materials. Nanomaterials may be unique, precision engineered enabling a host of applications but these attributes are of no benefit whatsoever if I cannot establish certain variables or adopt trade techniques using these materials to benefit my business model. I can satisfy all my requirements using traditional materials so why should I change to use a suite of materials where I have no assurances? These are often typical of the blunt arguments presented by the real business world when we suggest they consider the wider use of nanomaterials. Sooner rather than later we all need to listen to what exactly is being said instead of burying our heads in the proverbial sand of scientific wonder and wishful thinking.
Q: What is the solution?
A: Solutions in business are never easy. Nanoscience and nanotechnology can help itself to attract hard as opposed to soft investment capital. Our industry needs to develop self‐regulation as a cornerstone of its future development. By hard I mean hands‐on where commercial management deficiencies are addressed and solved so as to ensure commercial sustainability and return for medium to long term value investment. Science and research are vital components toward commercial and societal benefit, but science and research needs to deliver commercial results. Results mean sales, profits and investor returns not just promise of a return.
With all due respect to the scientific community, the art of selling or financial management are not component parts of the scientific curriculum, nor is the appreciation of capital investment. We have to play to collective strengths as investor tolerance of failed technologies has been stretched to breaking point through hard experience this past decade alone. In short we need to employ as many salespeople and investment professionals as we do scientists and researchers who can carry the message of nanoscience into the world of global capital while developing visibility in trade process to gain commercial traction.
Thank you Charles for taking the time to explain the basics of commodities exchanges and why the time is ripe for a nano materials commodity exchange in such a clear way. Tomorrow there’s commentary on self-regulation and paradigm shifts.