This is part 2 of Charle’s McGovern’s interview. I’ve copied the following paragraphs over from part 1 of the series.
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 my 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 2: self-regulation and paradigm shifts:
Q: What do you mean by Self‐Regulation?
A: All commodity exchanges have developed through a process of self‐regulation. National governments have never in the history of capitalism developed the industrial process of trade, using commodity exchanges. Rather they have encouraged interest in a given resource to first come together to agree working processes of trade using the commodity exchange methodology and then sought to develop a legislative framework based on the outcome. Self‐regulation is the process where trade Supplier, Purchaser and Investor have come together since the 16th century to agree standards and trade process across metals, grains, polymers, fibres, fuels, electricity and several other raw materials holding universal application across the world of global business. It is not a new concept in a business context, and certainly one nanoscience and nanotechnologies needs to embrace in the context of the raw nanomaterials base underpinning either.
Q: Commodity exchanges are regulated?
A: Yes primarily by those who participate using the commodity exchange in question in accordance with the respective exchange’s rules and regulations. Government in the context of financial regulation relates in the main toward ensuring the interests of private investment capital committed to speculative gain trading listed raw materials or commodities is safeguarded. Private capital being individual savings invested with mutual or specific commodity funds who in turn invest for return in commodities, or shares using individual savings. The New York Stock Exchange opened for business in the 1790’s, but the Securities and Exchange Commission did not materialise until the 1930s in the aftermath of the Great Depression where individuals had lost their savings in the 1929 crash. Similarly the US Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States, while the world had used commodity exchanges for centuries prior to this legal development.
Q: Will INSCX be regulated?
A: Yes INSCX will be regulated by its members as a commercial commodity exchange following the historical Self‐Regulatory approach. Self‐regulation is by definition much stronger than a reliance of formal legislation. Speculation on INSCX will only be permitted by qualified funds set aside solely for the purpose of speculation, to be used by professional investors who fully understand risk to investment capital, and not personal savings of individuals held in various investment funds which invest for gain in traditional listed commodities. INSCX will of course follow appropriate industry standards as established within the financial community, but is primarily a commercial as opposed to investment marketplace meeting the needs of trade interest in nanomaterials. The exchange will by definition also ensure member adherence to any formal legislation and regulations governing the manufacture, use, application and/or exchange of engineered nanomaterials. As global capital support for nanomaterials develops traction INSCX will move to structure the regulated listing of engineered nanomaterials as investment‐grade commodities in their own right. Progress toward investor acceptance of nanomaterials as investment-grade commodities can only develop gradually. INSCX as a commercial exchange initially is the point of departure toward that aim.
Q: Nanotechnology is not the new asbestos?
A: No‐one is saying that it is least of all INSCX exchange. What is being said it simply that it becomes easier for ill‐informed opinion to snipe at the wider industry when we ourselves fail to develop self‐regulatory frameworks, practically ignore government requests for collaboration, waste scarce capital convening talking to ourselves conferences whilst continuing to develop universal trade associations that are akin to having a coffee producer talking to a wheat farmer or a steel magnate in a practical commercial context. We need to accept a need for change as opposed to waiting for national governments to tell us we have to change, and adopt a maturity that can openly embrace criticism however genuine, ill‐informed or loaded against the development of the wider industry.
Q: Regulation is developing in nanoscience, how can INSCX help?
We are fully conscious of the economic infancy of nanoscience and nanotechnologies and applaud the efforts of nanobusiness, academia and regulators to date. The lack of an industrial self‐regulatory framework is a constructive criticism expressed in the common interest and should not be construed as a loaded side‐swipe. Bear in mind it took centuries for society to achieve the trade efficiencies we have today in the context of traditional materials and assessing our current industry situation in light of the historical fact is warranted. INSCX exchange is disposed to bring into being the missing component of selfregulation.
The exchange will reflect the interest of business engaged in the supply and use of engineered nanomaterials and is uniquely capable of reflecting business and capital concerns to government given the fact we have the input of expertise in nanoscience and capital investment within the ruling body of the exchange. All established commodity exchanges regularly liaise with national governments reflecting business concerns. Suppliers and Purchasers of engineered nanomaterials can use INSCX to present a unified and specific voice to national governments. The fact our interest in seeking to secure increased trade flows across engineered nanomaterials meets with the common shared interest our industry has with capital and national government, that being to ensure exploitation to benefit both commerce and society is a feature of all business.
No responsible industry has a commercial interest in pursuing a course of action which opens the door to the possibility of future legislative sanction arising from negligence or unsafe products. It is not a matter where nanoscience and nanotechnology can afford to pontificate any longer as to whether or not it should work with government, it is a necessity dictated through any sensible appreciation of commercial logic.
Q: Nanoscience and nanotechnologies will create a paradigm shift?
A: Yes neither the paradigm shift, nor the accelerating nature of nanoscience and nanotechnology cannot and is not being played down or ignored by the exchange. In fact the opposite is the case insofar as we understand the significance both in the context of science and more importantly as regards how the innovations can be structured to sustain commercial and societal benefit. INSCX is geared to encourage innovation fully appreciative of the radical nature of nanoscience and nanotechnology. The question is not will a paradigm happen, but when and how?
Q: How will INSCX solve the paradigm dilemma?
A: To assume INSCX exchange alone can solve the paradigm dilemma is to belittle the efforts of science and national governments who have grappled with the dilemma for the best part of a decade. How does society structure a technology that threatens to move in effect from the wheel to the jet engine to the space station in a decade never mind over a few centuries? How do we deal with issues such as molecular self‐assembly, the use of programmable matter, or at the more simple level with a throw‐away culture in society which is confronted by materials that have better wear, tear and abrasion qualities? These are all exciting developments of fundamental concern to more than just ourselves here at INSCX. What INSCX exchange can do is add another means for vested interests to assess and structure toward the inevitable paradigm shift.
Q: How can INSCX help?
A: In the first instance all business requires the scarce resource of capital, to further investment in plant capacity all the way to the product delivery to the shop counter. Capital reallocation is always a protracted process. Despite ambitious and inflated assumption to the contrary, world capital resource is acting out a watching brief toward nanoscience and nanotechnology. There has been selective as opposed to universal capital support, while most nanobusiness remains cash‐starved reliant on public as opposed to private sources of funding. Equally the industry has not reached a position where it can withstand the conditions of private capital investment as displayed by the IPO performance of many nanobusinesses throughout the past decade. There have been notable collapses and stock price performance has generally been discouraging. We personally believe nanobusiness is adopting too keen a disposition toward seeking third‐tier equity listings. This is not the way forward in our opinion, and actually not necessary, as there are other options which should be obvious to our industry.
The exchange process followed by INSCX will provide a basis for capital to first assess the merits of reallocation in favour of nanoscience and nanotechnologies by proving the fundamental economic value to attribute the raw nananomaterials base underpinning nanoscience and nanotechnologies. Secondly, the commodity exchange process will provide industrial demand with the opportunity to quantify the essential commercial variables of price, standard, supply and indemnification delivering into being an efficient process of global trade based on the increasing use of engineered nanomaterials. Increased demand and access to exchange facilities such as hedging, syndication of supply and trade finance will benefit nanoproducers. Thirdly, INSCX have contracted a leading global measurement and characterisation company to establish industrial standards in characterisation methodology and practice alongside industry and established links with ISO Committee 229 for the purposes of developing more uniform materials specifications. Finally, INSCX within the UK already work with DEFRA to deliver into being a working reporting structure similar to that employed by the US CFTC in the context of engineered nanomaterials. The reporting structure will enable market participants to trade anonymously with full provision for legislative inquiry when ordered in law to reveal counterparties to any trade executed on the exchange.
The cumulative effect will be to present a situation where capital reallocation and national governments can be disposed to structure the economic usefulness of innovation. The market process has been used as the core foundation through which society has sought to achieve an orderly transition from old to new innovation all throughout economic history. INSCX exchange cannot alone solve the dilemma, it can provide a further basis to move toward a solution.
Tomorrow is part 3: the international scene, how INSCX is being funded, a preview of Charles’ Nano Materials 2010 presentation, and more.