This is part 3 of Charles 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 supplemented them with 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 3: the international scene, how INSCX is being funded, a  preview of Charles McGovern’s Nano Materials 2010 presentation, etc.,

Q: Are you expecting participation from countries outside the EU? If so, how have you prepared for that?

A: Yes we do expect and invite participation from outside the EU. INSCX will operate as a global market in the Asian, European and North American time zones. It follows therefore the exchange will ensure member compliance with both its own rules and regulations and whatever legislation and regulation is applicable in the countries where members supply and/or receive engineered nanomaterials. INSCX are  obligated to ensure member and customer compliance with existing and future national and international regulations pertaining to the manufacture, use, application and/or exchange of engineered nanomaterials. This compliance apart from being a commercial necessity for any industry expecting capital support to drive supply capacity and demand is also law.

Q: Can you tell me something about or offer a preview of the topic for the speech you will deliver as a keynote speaker at the NanoMaterials 2010 event?

A: The conference organised by IntertechPIRA and NanoCentral is a welcome development in the interests of furthering commercial discussions to explore how best to pursue the safe, beneficial and profitable commercialisation of nanomaterials. The exchange has been invited to address the conference alongside institutions such as Lloyds of London, Cranfield University, Cientifica not to mention corporations of the caliber of Intel and Bayer to name but a few. We are also aware and supportive of the approach adopted in Canada and Australia in addition to the work of platforms such as Minam and NANOfutures. These are collectively very encouraging developments warranting universal industry collaboration.

We already have developed working relations with many of the attendees to NanoMaterials2010 and are keen to explore how best the exchange can drive increased trade flows across engineered nanomaterials. The wider nanobusiness community should be encouraged by the development, as within the body of speakers represents both expertise in nanoscience and commerce. The uniting of both science and business can only be positive for the wider development of the industry. Outside of the EU we are also well aware of similar encouraging developments in the United States and Asia.

As regards our own presentation, this will focus on the commercial merits of the exchange project to suppliers and users of nanomaterials in addition to highlighting regulatory benefit and our efforts to create capital frameworks of excellence to support and nurture emerging nanobusiness on a global scale.

Q: Capital networks of excellence?

A: Capital in our view needs to support nanoscience and nanotechnology, and let’s not forget the broad technology offers investors a lifeline to achieve sustainable returns through the structured investment of risk capital. We fully believe capital can brought to bear to support nanobusiness provided we as an industry act now to put our own house in order. Self‐regulation is the first of many steps we should take. No‐one needs to convince the exchange as to the potential of the industry, and without revealing too much at this stage, a great deal of behind‐the‐scenes effort which already involves the exchange and participants disposed to the workings of Wall Street and the City of London are underway to convince the global capital market to rally to the support of the fledgling industry. More will become apparent as we progress in due course.

Q: I noticed that you have a number of speaking engagements planned for May. Is this for raising awareness or for raising funds?

A: Yes our speaking schedule is busy at present and we have made several presentations thus far both in private within the City of London and to the recent Royal Society UK‐Russia collaborations seminar. Our engagements relate to explaining to the nanocommunity the reasons why it needs the exchange and are

not part of any internal fund‐raising exercise. We are involved with the Scotland based Institute of Nanotechnology and the British Chamber of Commerce to discuss a variety of relevant topics. A more intense schedule of commercial engagements is earmarked in the run up to formal launch of the exchange trading platform both within the UK and overseas particularly within the financial markets of the United States and Asia.

Q: How is a commodity exchange funded?

A: All of the world’s commodity exchanges are managed by commercial corporations. These exchanges are funded in the normal way through capital investment, whether public or private equity and are sustained by deriving revenue through levying exchange clearing and member fees. INSCX exchange has acquired the resource to deliver by first quarter 2011 the world’s first dedicated commodity exchange platform for engineered nanomaterials and the capacity to set industrial specifications for trade. The exchange when it is ready will follow a formal IPO route. In the interim we will be sustained through clearing and member fess derived from increased trade flows across engineered nanomaterials in the same manner as traditional commodity exchanges are.

Q: I noticed that you’ve started a business called Nano Capital Markets, which is related to and in addition to the exchange? Can you explain the relationship? Plus, I notice there’s mention of Assured Nano which applies some sort of vetting process for the INSCX. Is this agency at arms‐length or is this another venture of yours?

A: Firstly, we need to separate AssuredNano from Nano Capital Markets. Nano Capital Markets (NCM) is the brokerage arm of NanoTech Partnership and the first appointed Broker/Dealer to the INSCX exchange. The role of NCM is to act as agent and principal to execute trade in listed instruments based on the physical supply of accredited and compliant engineered nanomaterials. As membership levels on INSCX from within the global securities and commodity industry increases, NCM will be one of a series of approved Broker/Dealers servicing customer requirements in the broad suite of raw materials. INSCX exchange does not trade, nor does any established commodity exchange trade for that matter, rather INSCX provides the facility for member firms of the exchange to trade. NCM is a wholly separate entity from INSCX exchange and will similar to any member of the exchange be held subject to exchange rules and regulations and any legislation governing the manufacture, use, application and/or exchange of engineered nanomaterials.

AssuredNano are wholly independent from both NCM and INSCX exchange and not another business venture as has been suggested. The role of AssuredNano is to coordinate the accreditation of all supply onto the marketplace using standards of evaluation set by AssuredNano itself. AssuredNano offers, for the first time, a way for responsible manufacturers to address nanomaterial SHE concerns based upon the use of good current practice. In so doing it provides a demonstration to all stakeholders in nanomaterials and nanotechnology that SHE issues are being taken seriously and tackled responsibly and that the health and safety of people exposed to nanomaterials or nano‐enabled products will be ensured. Most importantly, AssuredNano is designed by industry experienced SHE experts to deliver a commonsense and realistic approach to nanomaterial SHE.

Q: Who controls INSCX?

A: INSCX exchange is to be managed by an independent Board of Governors elected from across expertise in nanoscience, specialist academic disciplines, the professions and the securities and commodity industry. The Honorary Chairman of the Board is a former head of international trading at the Wall Street investment house, PaineWebber who has decades long experience in the securities and commodity markets not to mention playing a pivitol role in developing momentum on Wall Street to use the fledgling NASDAQ market during the 1970s.

The Board also contains an elected representative who acts as a lead consultant on commodities to UNCTAD, another who is the current chair of nanotechnology at one of the world’s most respected business universities. The chair of the Board is the current CEO of NanoCentral, Assurednano are also represented as are specialist academic disciplines in applied mathematics and advanced computing. All Board members are not shareholders in the exchange operating company and are obligated to the exchange membership to ensure the exchange’s rules and regulations are adhered to. Another function of the Board is to further discussion within nanoindustry, industrial demand and national governments to develop further commercial cohesion.

Q: When is the exchange to launch?

A: Formal live trading launch is scheduled first quarter 2011. By June the exchange’s official website will be uploaded at www.inscx.com enabling users to register and to ensure compliance in legislation governing the manufacture, use, application and exchange of engineered nanomaterials. Membership is open to any global organisation that agrees to abide by exchange compliance rules, and dedicated Market Managers are set aside to help registrants regardless of fiscal size use the exchange and its extended networks of capital and business support excellence. INSCX is committed to enabling existing and emerging nanobusiness demonstrate to global capital its true economic value and societal potential and equally committed to ensuring capital is disposed to fully appreciate the significance of the generic fields of nanoscience and nanotechnology. We can only encourage our industry to become involved with the exchange project.

Q: Is there anything you’d like to add?

A: INSCX exchange offers a great deal of commercial flexibility necessary to drive trade flows across engineered nanomaterials and will on launch provide a fast, effective and transparent route to the international physical nanomaterials markets enabling the wider industry to grow reliant first and foremost on its own strengths.

Thank you Charles McGovern, CEO, INSCX.

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.