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What is the alternative blueprint envisaged by doubters and perhaps opponents of the exchange process to deliver a commercial framework capable of delivering commercial usefulness in nanomaterials while safeguarding societal interests? Given that we all supposedly aspire to enable nanomaterials to compete with existing raw materials, when can anyone suggest the alternative blueprint to the open market will become manifest?
MEPs have called for nanosilver and long multiwalled carbon nanotubes to be banned in electrical and electronic products. Members of the EU Environment Committee made the call as they voted on amendments to the Restriction of Hazardous Substances Directive.
The European Parliament's Committee on the Environment, Public Health and Food Safety (ENVI) has voted on the adoption of suggested amendments to the current regulation on the restriction of the use of certain hazardous substances in electrical and electronic equipment (recast) (ROHS/WEEE). Following the first recast drafts for amendments suggested by the European Commission specific consideration of ‘nanotechnology' and ‘nanomaterials' was introduced into the Parliament's suggested amendments in January 2010 Current ammendments demand special consideration of nanomaterials under the new Directive, singling out nanosilver and carbon nanotubes in a number of cases and specifically demanding notification, labelling, and prevention/prohibition. (Source NIA). Responding to the EU Parliament proposals, the NIA was quoted in response citing the example of nanomaterials used to deliver transistors in computer chips, "Every transistor in a computer chip would then include a hazardous substance,' explains Steffi Friedrichs, director general of the international Nanotechnology Industries Association. Labeling is an understandable consumer demand, but it needs to be practical, and labeling every computer chip would be nonsensical."
RCS Summary response available at www.rsc.org/chemistryworld/News/2010/June/14061001.asp
INSCX exchange - Market Steering Committees
Responding to the call for an outsight ban on nanosilver and CNTs, a statement issued by the Markets Steering Committees of INSCX exchange, a spokesperson listed the following, detailed response.
"The composition of INSCX exchange lists representation elected from within nanotechnology and the global securities and commodity industry, a composition which includes specialists in the areas of nanomaterials regulation, Health & Safety, material standards and financial markets. The established remit of the exchange is to formalise trade in (SHE) compliant nanomaterials in accordance with commercial standards observed elsewhere in the exchange of raw materials and commodities. The rationale is to drive a transition within nanomaterials from potential to deliverance of commercial usefulness. This effort represents the first truly global attempt of cohesive substance to coordinate a process of commercial self-regulation in the exchange of these materials. We remain fully aware and supportive of the continuing efforts and foresight shown by the European Council and EU Commission to develop hierarchical structures and frameworks to invigorate continued innovation in a manner which meets societal economic and environmental interests. Our objective is to suggest to the European Council, Commission and Parliament that the medium of the open market deploying the mechanics of a commercial user commodity exchange can act as a compliment to the common objective, that being to pursue a course of action which delivers commercial sustainability whilst quite rightly and responsibly serving wider societal interests.
INSCX exchange endorses continuation of research effort directed toward regulation by several organisations in the EU, Canada, Australia, Russia, China, Brazil and the United States in particular, as clearly the commercial infancy of nanotechnology warrants defined formalisation in standards, Health & Safety, toxicology assessment and clarification as to permitted use on a material-by-material basis to enable sustained commercial usefulness. Calls for outright bans on the trade of particular nanomaterials are at this stage given the commercial infancy of nanomaterials premature as they constitute in effect universal bans placing the entire nanomaterials industry into a straightjacket. Proposed regulatory changes as suggested by EU MEPs fail to account for the generic scope of application inherent with these materials. These calls, however well intentioned represent haste to judgement in our opinion. Should outright bans on cited nanomaterials now be instigated through what appears an appeal to the gallery of public opinion, any amendment in regulation as currently proposed will set a precedent where almost any nanomaterial can be outlawed? This would suggest we should also act ban all hazardous materials used in society far beyond nanomaterials to include chemicals, oil and other materials. Regulation needs to be based on permitted use, clearly defined material and characterisation standards and transparency in trade.
The European Parliament's Committee on the Environment, Public Health and Food Safety (ENVI) call for a ban on certain nanomaterials we regard as a haste to judgement, a view shared by many researchers, producers and users of these materials. The call has caused increasing disdain especially within the United States. We call instead for open collaboration between the nanomaterials industry and the EU Parliament and for MEPs to consider as a practical step the instigation of a programme of financial support for SME nanomaterials suppliers needing to be accredited under the Nanomaterials (SHE) Accreditation Scheme. A more universal accreditation of suppliers and downstream users in accordance with this comprehensive Health and Safety benchmark would stabilise a base standard across the industry. The scheme is endorsed by the Institute of Occupational Medicine and INSCX exchange and available within the EU and the Americas at present with intention to be made accessible globally. From our perspective, accreditation permits supply of defined nanomaterials onto the open and transparent market structure which is the central purpose of INSCX exchange, that being to enable nanomaterials to be exchanged in observance of standards adhered to elsewhere in the global economy. Through a formal market structure material specifications are fixed, trade parameters agreed and executed with transparency, which safeguards commercial requirement while provision exists for full disclosure in law. This is the only viable commercial process which can demonstrate the commercial usefulness of nanomaterials. Within the nanomaterials industry, effectively an industry providing a multi-disciplinary suite of alternative raw materials for use throughout the supply chain to end product, there is no application of the traditional open market economic checks and balances that have acted to drive commercial activity in the procurement and supply of raw materials in the global economy over centuries. The purpose of an open market is to generate a critical mass where potential of any resource or material can demonstrate commercial usefulness. Commercial usefulness is determined by a process weighing potential against consideration of very clearly defined variables used to prove worth or usefulness throughout the supply chain. The variables are; Price, availability, indemnification, material standard/quality, permitted use, trade flexibility and disposal, variables given an efficient clarity through application of the market mechanism.
While we endorse many of the views expressed by the Nanotechnology Industries Association, and indeed share common concerns expressed by European MEPs, consumer groups and many others, safety concerns are also taken seriously by potential buyers and insurers of nanomaterials. To arrive therefore at a point where regulation can meet both societal and commercial interest we believe the market process must be adopted in tandem with a much more comprehensive, logical and cohesive interaction between the Parliament and the nanomaterials industry to arrive at working regulations. It is only through this process, where focus is driven to assess the benefit and risk of nanomaterials on a material, variant and applications basis using objective analysis, supported by an open market process capable of proving commercial usefulness, that a working architecture of regulation can be enacted. The all-embracing, universal approach is both punitive and impractical."
Right to Contest
Signalling options available to the nanomaterials industry to object and should the situation warrant, legally contest moves to instigate universal and what appear punitive amendments to regulation governing the manufacture, use, application and exchange of nanomaterials, the exchange spokesperson added,
"While regulations which meet societal interests are paramount, a point accepted by the nanomaterials community without reservation, regulation needs to be balanced, practical and objective. Where regulatory necessity is proven as necessary the nanomaterials community in addition to INSCX exchange welcome and will fully embrace the import of such regulation. INSCX exchange will bind all its members and customers to such objective and practical regulations. This is stated without reservation or ambiguity. That stated however, where no rational basis is presented to prove regulatory alteration as necessary, or suggested amendments are deemed impractical or unduly punitive, we invite the wider nanomaterials community to contest its passing through recourse to law if necessary. Nanotechnology may be a junior on the commercial stage, may have proven prone to an irrational exuberance owing to its origins in science and academic circles granted, but as an industry will expect the fundamental right bestowed all industries reserve to defend its ability to pursue socially compliant commercial activity. This industry similar to any other cannot be expected to remain silent when regulatory proposals lack clarity and foresight. The only logical way forward is to introduce to the nanomaterials industry the historical import of Self-regulation within commercial activity at the source of raw materials, a process of agreement between supplier and potential buyer fully supported by appropriate amendments to official regulation."
The evolution of all economic activity, and particularly activity associated with the procurement and supply of raw materials has over centuries developed through a process of Self-Regulation. The application of this concept has proven most profound within the area of exchange activity. The origins of the world's original commodity, stock exchanges and other financial exchange markets prove these marketplaces developed as Self-Regulating Organisations, where members and customers each for polar opposite reasons came together to agree what was to be exchanged and to what standard. As time progressed formal official regulations were enacted to bolster the process. Stock markets tend to be more officially regulated, as does trade on investment grade commodity exchanges, while commercial commodity exchanges facilitating trade in non-investment grade materials tend to come under the umbrella of material registration and standard financial regulations. There is for example no formal body outside the United States specific to the regulation of commodity trading. All formal, official regulation relates to the registration and use of commodities, or financial regulations centred on investment grade materials to safeguard private capital. The reason why no formal Commodity body exists relates to the fact that Self-regulation within an open market process tends to be much more comprehensive that official regulation as it caters to satisfy the competing interests of buyer and seller, insurer and investor. A Buyer will always want the best price, assurance on standard and trade flexibility, while a supplier will always want to maximise price, but remain conscious to the needs of buyers. The investor similar to the buyer will remain fixated on price, while the insurer will insist on observance of trade standards. The compromise between these competing opposites has always been crystallised with greater conviction through the open market process.
The process of self-regulation adopted by open and transparent marketplaces follows the historical template found in the origins of all commodity exchanges existing in the world today, marketplaces which since the 19th century have helped structure commercial trade practices and standards across a diverse spectrum of materials and commodities from Grains, Metals, Minerals, Resources and Capacities. A commodity is defined as natural resources, chemicals and physical products you can touch, taste, smell, grow, mine, consume and deliver. It remains an historical fact commodity exchanges have proved capable time and time again of providing the commercial framework to enable the efficient allocation of commodities between the competing interests of buyer, seller, insurer and investor while serving to assist the safeguarding of societal interest. It follows therefore, that a commodity exchange process for nanomaterials can provide a cohesive template to be assessed by regulators to best determine what needs to be regulated in the first instance, and in the context of defined applications. The history of commercial trade in our world today is testament to the proven ability of the commodity exchange to establish the exact specifics of what is to be traded between buyer and seller in accordance with commercial need in the first instance thus providing the mechanism to enable regulation to be based on informed judgement.
Quite apart from the logic expressed above, it remains the collective opinion of the Market Steering Committees of INSCX exchange to state categorically the approach adopted by many agencies within nanotechnology thus far over ten years of deliberation to deliver societal and economic benefit through exploitation of nanomaterials stands at odds with the most basic of commercial logic. One the one hand state investment is ploughed into developing the industry while the world is assured nanotechnology heralds the onset of a second industrial revolution, while on the other we find calls for blanket bans on certain materials that hold generic multi-disciplinary use beyond areas where use can justifiably be held to possess a societal concern. Both are reflective of polar opposites, if not contradictory. Clearly there must be standards, and commercial users of any traditional raw material accept this as an essential prerequisite necessary to meet corporate interests alone. This simple realisation raises a fundamental question. Without the discipline of an organised, open market how can any sustained incentive exist to serve corporate interests or assess what needs to be regulated?
One proposed amendment reads:
"There is scientific uncertainty about the safety of nanomaterials for human health and the environment, no internationally agreed definition of a nanomaterial and no internationally agreed test guidelines; [...] (Justification: A 2009 research project on emerging nanotechnologies found that about 807 products are available on the market containing nanomaterials, some of which are EEE. There is a common agreement amongst nanotoxicologists that risks of severe impacts on health and the environment are real, precautious measures are therefore warranted in regards to nanomaterials."
Clearly the tenor of the amendment suggested above portrays a clear logic, but what mechanic is offered to deliver any form of discipline based on the exact characteristics and commercial application of nanomaterials, used to some degree or other to deliver the "products on the market." Nanomaterials are multi-disciplinary, almost infinite in functionality holding generic usage? Many materials are hazardous. Acids used in batteries are toxic if consumed, so while regulation permits acids to be used in batteries, use in a beverage is prohibited. Should we ban acids then or define permitted use? Furthermore, we question the point of the entire exercise to commercialise nanotechnology when no real effort is made to incorporate the framework of the open market process to attract the necessary economic checks and balances in the supply and sourcing of raw materials delivered through an open market process. This was the very logical and commonsense mechanic used to deliver the first industrial revolution? What has powered economic interest in any raw material has been a recognition of a potential which was then structured to present commercial usefulness dictated by the basic requirements of commercial interests; defined as trade buyers, sellers, insurers and investors who came together to follow agreed trade and materials standards at source allocation of raw materials. The most essential raw materials used by society today are exchanged through formal commodity exchange processes where rules are clearly defined and observed by market participants. Where transgression is proven penalties are incurred on the transgressor. As nanomaterials hope to graduate to become the essential raw materials of tomorrow, and the competition use the open market process to structure trade efficiencies, how can this be achieved in isolation from an approach which seeks to structure the allocation of nanomaterials through an open market process?
What drove the ability of past society faced with an innovation frenzy and commercial curiosity on a par with the nanotechnology euphoria of today to progress commercial activity? What was the galvanising mechanism used by many of the innovative materials of the past, materials we now regard as commonplace, to encourage commercial interest and uptake in these materials? Potential and need of course, but what mechanism actually facilitated the growth of whole industries based on the supply and use of these materials? These are among questions where answers are obvious to anyone with an appreciation of economic history. The galvanising influence was the embracing of the organised market process by competing interests in past innovative materials. The relevance should not be lost on anyone concerned with the evolution of nanomaterials today. It is market forces that will first determine any nanomaterials' ability to cross the transition from innovative potential to sustainable commercial usefulness. It remains questionable, if not impossible to conclude exactly how the transition can be achieved with any cohesion or regulatory compliance when nanomaterials are not even deemed necessary to be exchanged by many politicians, or in particular commercial suppliers and regulators of nanomaterials, to standards observed elsewhere in the global economy? From a commercial viewpoint, where the presumed objective is to generate sustained uptake in any raw material, it is the very ability to quantify the variables of materials standards, supply capacity, Health & Safety, price discovery, trade flexibility, indemnification, permitted use and quality assurance that enables and incentives commercial usefulness. The methodology to quantify most if not all these variables is the purpose of the commodity exchange, proven time and time again as the most practical means to drive commercial uptake of any raw material.
Are Nanomaterials Different?
While nanomaterials are unique, no justifiable reason can explain why the nanomaterials industry has as yet not established any viable mechanism, bar a continuous appeal to rhetoric citing potential, capable of quantifying these essential commercial variables as is the case all across the existing global economy in the allocation of raw materials to further production of goods. Claims that nanomaterials are possessed with an infinite number of variants and therefore too complex as raw and functionalised materials used to further production to be treated as commodities are utterly illogical. The same can be said of any raw material. There are some 160 grades of crude oil, dozens of oil derivatives, several hundred grades of wheat and countless other variants of raw materials that do trade using a commodity exchange process. Where there is agreement on a material standard between buyer and seller in the classification of a raw or semi-finished material that commands a worth for use to deliver an end product or application there can be an open market. Given this clear deficiency with raw materials nanomaterials suggest they can compete with, how can nanomaterials deliver anything resembling a second industrial revolution, when they cannot command the trade efficiencies necessary to prove commercial usefulness?
Current commercialisation strategy represents no more than a stumbling from crisis to inevitable crisis? Buyers will not flock to produce products containing materials they cannot price into the production process, without being assured of quality, trade flexibility and open price transparency. Insurers will not underwrite trade where the raw materials base used to deliver end applications and products cannot be established. To do so would be to reap a short-term commercial gain in premium income while risking a Pandora's Box of litigation in the medium to long term. The way matters are given current commercialisation strategy is such that insurers are more likely to provide coverage subject to exceptions and exclusions to the extent where there is no effective indemnification of nanomaterials throughout the entire supply chain. This effectively runs the risk of reducing the innovative potential inherent in nanomaterials to an effective game of chance in a backstreet casino. More to the point, how in the absence of a market process, which will prove commercial usefulness, will supply capacity harness the financial resource to upscale, assuming sustained demand materialises for raw nanomaterials. This is the very essence and primary purpose of a commodity exchange, to enable commercial usefulness in a manner which develops organic growth from within in adherence to defined material and commercial standards.
Response from the Industry
The efforts by INSCX exchange to establish a framework to prove and develop commercial usefulness have thus far been ignored, and it must be said in many instances dismissed as irrelevant, from quarters in nanotechnology who by and large have no formal experience or knowledge to actually understand what a commercial commodity exchange is, never mind assess the fundamental economic role played by the commodity exchange process across the entire existing global economy. Comments such as: "What do we need a commodity exchange for?" or suggestions that a commodity exchange is a monopoly, or views suggesting nanomaterials are so unique so as to rest beyond the remit of needing to employ an organised market process betray economic infancy, not commercial logic. Is the Chicago Mercantile Exchange (www.cme.com) a world centre for trade in grains, (Wheat, Rice, Soya, Meal, Oats), oil, electricity, gas, coal, petrol, diesel, ethanol, carbon emissions, metals as diverse as copper, iron, uranium, silver, steel, gold, platinum, palladium, freight, and a phenomenon as diverse as the weather, a monopoly? Add rubber, fabrics, aluminium, zinc, tin, wool, lumber, livestock, milk, eggs, butter, juices and all the other items which trade on the 49 established global commodity exchanges across the world today; Are these exchanges monopolies? A local livestock market operates very similar to the principal of a commodity market or an open property auction. The local grocery store is a marketplace, are any of these commercial venues monopolies? Has anyone in nanotechnology actually stopped to ponder exactly why all other essential raw materials seem to use if not require a commodity exchange?
The extract below taken from a commodity information site may cast some light as to the relevance of INSCX exchange for nanomaterials.
The opening of INSCX is a significant event, as it means that for the first time nanomaterials may be traded in the same way as the basic commodities that have for many years been the foundation of industry and food production. The historic trade in commodities allowed purchasers across the world to buy goods sight unseen, knowing that since they were commodities the goods they were buying had to have met minimum standards of quality. This greatly facilitated trade in these raw materials. Larger quantities were available for lower prices, allowing the cheaper production of finished goods and foodstuffs. The opening of INSCX means the same benefits can now pass to nanomaterials. Capacity to deliver larger volumes of raw nanomaterials can grow organically to be made available to producers, needing to use these raw materials to produce end goods and applications while the nanomaterials purchased will be of assured quality and will be more competitively priced. This step is essential if the manifold benefits promised by nanotechnology are to be realized. The producers of the first generation of nanotechnology based products that are widely available to consumers and industrial clients will have to have access to large amounts of raw materials to facilitate research, development and mass production.
What purpose a Commodity Exchange?
Has anyone actually taken the time to analyse the import of the cited extract above within nanotechnology? Equally is anyone actually wondering how we mass produce cars today reliant on metals say, as a raw material? What mechanism was used to upscale production from the small foundry of the past to the massive facilities employed to produce metals today? How are metals exchanged? What process guarantees a metal standard? What is used to price it? How does an auto manufacturer source it? How does a supplier finance producing it? How do national governments know what is being exchanged, and how do regulatory agencies regulate its use?
Claims to remain at the forefront of developing a cohesive structure for nanomaterials, while ignoring the template of economic history or the role played to employ open market forces to help deliver working solutions to the questions posed above, which provided the historic template for regulation based on self-regulation in the trade process of past innovative raw materials instigated by market participants themselves, a process then backed by formal regulation, can only be regarded as mere make believe, if not an absolute illogical assertion. Wonderful material may be exciting to an inventor, but practically useless to a potential user who cannot establish essential variables necessary to decide whether to use the wonder material over existing materials where the variables can be established. This is simple commercial commonsense not rocket-science. A supplier can produce whatever they wish, but the entire exercise is pointless in a commercial context unless a buyer needing assurance on price, standard, insurance, delivery and trade terms can act to use it. As most buyers are inured for centuries to source raw materials through a commodity exchange, does the nanomaterials industry deem itself capable or reinventing the manner in which the global economy conducts trade?
Let us examine the other objection that a market is a monopoly.
To suggest an open market is a monopoly is a direct contradiction in terms. Not a single commodity exchange is a monopoly. The commodity exchange is the open market where anyone who agrees to abide by its rules of trade can participate. The other common objection, questioning as to why nanomaterials needs an organised market stands clearly at odds with what we can only presume the objective of nanomaterials suppliers to be. This we assume is to bring what they produce to market in a manner which appeals to potential buyers alluded to above. The fact suppliers also use commodity exchanges to plan and sell materials forward appears lost on all as a key function of forward trade is business planning, a factor recognised by small corn farmers in the 19th century. Why does this logic appear lost of nanotechnology? Failure to embrace the self-regulatory market process not only restricts potential uptake from buyers, but also leaves regulators without a clearly defined trade template and it follows no option but to introduce draconian regulation which will only stifle growth prospects. In many respects our industry has simply got carried away with illusions of grandeur based on a focus on potential alone. Potential does not go anywhere in the commercial world unless potential can demonstrate and prove commercial worth. That is the purpose of an exchange, to deliver commercial usefulness across competing interests. A greater concentration of minds as to the mechanics, necessary to deliver sustained commercial usefulness is wholly necessary.
Standards matter in the commercial world, albeit from what may appear seemingly a desire to pursue solely commercial interests. A car manufactured using sub-standard raw materials or equipped with faulty components that causes members of the public driving the vehicle to have accidents constitutes a commercial nightmare. A handful of recent lawsuits almost brought a Japanese car goliath to its knees because of a faulty accelerator, while tyres on a GM Jeep series caused accidents resulting in a massive vehicle recall some years ago, and the issuance of costly litigation proceedings against a household name in the tyre industry. Fuels sold by a leading UK supermarket chain which were proven to damage domestic car engines continues as cases before the courts today despite the event occurring some years ago. These incidents instigate what we refer to as the "Blame Game" and no responsible industry needs reminding of its significance.
The Blame Game
All instances cited above resulted in or the more recent may result in costly financial penalties having to be borne by the source of the problem identified as the cause of the accidents and engine problems. Undoubtedly the tyre manufacturer has initiated proceedings against the supplier of the rubber used to make the faulty tyres in an attempt to pass on the blame, or at least explored the possibly of so doing. The supermarket will have undoubtedly instructed its legal teams to sue the fuel supplier or explore whether the fuel supplier can be blamed. All these instances have one thing in common; a desire to apportion blame to something or someone. Any similar public risk in the context of products found containing nanomaterials, will assess whether the problem rests with nanomaterials used to deliver the product or through some other deficiency. The process will be akin to a game of musical chairs for high stakes played out through protracted legal proceedings before the commercial courts to the delight of participating representatives of the legal profession.
Once the culprit is identified the entire gambit of legislation will be thrown against the supplier of the suspect material or component, whether throughout the life of or as a consequence of litigation arising through disposal of the product. The legislative sting or penalty will be initiated first in the commercial courts, supported where appropriate by official government intervention should lawsuits involve participation from anymore than a handful of the public. Politicians facing the prospect of throngs of the public scrambling to the courts will simply have to act. These legal procedures are already long established despite the commercial infancy of nanomaterials, and should underline to any supplier, or user of nanomaterials the need for clearly defined commercial structures to ensure that should any legislation be initiated, they are in a position to prove they were not at fault, or if proven to be at fault as a raw materials supplier, the materials supplied were covered with comprehensive commodity insurance. Someone will have to pay. When we add in essential variables needed in the sourcing of raw materials, price discovery, liquidity, assured quality and delivery to name a few. All of this relates to commercial usefulness a concept which overrides any claim to potential. In fact commercial usefulness supersedes potential.
What then do we mean by commercial usefulness? Why is this important and more to the point what does the existing materials world use to deliver it?
It is not the potential of nanomaterials that will drive commercial uptake, but rather a combination of potential that can deliver commercial usefulness. Commercial usefulness will as it develops provide regulators with a template on which to base an informed assessment of regulatory necessity. In the context of raw materials, all rule-bound commodity exchanges where these materials are exchanged are disposed to enforce through commercial necessity whatever regulation is deemed practical and necessary to safeguard societal interest on market participants. However, does anyone seriously expect nanomaterials to pose a commercial threat to existing raw materials, (Iron ore for example, which trades in excess of 1.7 billion tonnes annually across the global economy through a self-regulated formal market processes) when nanomaterials are exchanged as they are at present in such a fragmented manner? There is clearly no visible means for nanomaterials to satisfy or indeed quantify variables that prove commercial usefulness.
How are nanomaterials suppliers expected to upscale, and more to the point, where will the capital come from to enable them to do so? The choice is stark between continuing on a path that reduces the commercial usefulness of nanomaterials to mere novel trinkets or the sole preserve of the capital rich, or one embracing a commodity exchange process that enables nanomaterials to compete on a global stage with other raw materials. All other leading raw materials listed for trade on the world's commodity exchanges first acquired the capital resource to meet demand through syndication, where syndication was and remains based on competing in an open market process. For example, in the exchange of industrial and precious metals even today formal warrants at the point of trade are issued by the London Metal Exchange to enable trade financing to be provided to suppliers needing to upscale to meet purchase orders acting either as singular or multiple suppliers. Those suppliers wishing to compete for the large order do so in the open market knowing they can access the capital resource to upscale within minutes of accepting an order to supply a raw material. Where in the exchange of nanomaterials is there an existing mechanism to deliver this synergy? Indeed bar the effort of INSCX exchange, and those allied to the project, has anyone actually come to regard deliverance of such a mechanism as a commercial priority?
Exchanges are for Speculators?
While a stock exchange is the eternal home of the risk taker, most people assume the origins of commodity exchange were the result of initiatives taken by Wall Street Investment banks and speculators. This assumption is entirely erroneous. Commodity exchanges first developed as commercial as opposed to speculative marketplaces. Wall Street did not invent the commodity exchange. The origins of commodity exchanges developed through interaction between small commercial suppliers and commercial users. The ability to trade forward (Sell or buy today a material to be delivered or required in the future) was first developed by the small corn farmers and merchants who came together in 1848 to establish what is now the Kansas Board of Trade, the largest centre for the exchange of some 240 grades of wheat in the world today and part of the CME group of exchanges. The forward contract or future was developed to overcome supply deficiencies to meet increasing need for foodstuffs and a need to offset adverse moves in the price of corn, a commodity influenced by seasonal factors. Wall Street and national governments did not develop the process; Small farmers and merchants did.
Small farmers were trading corn and other agricultural products using forward contracts long before many Wall Street investment banks were even founded. Speculators existing before traditionally always graduated toward involvement in stock exchanges, not commercial commodity exchanges. The bulk of official regulation in markets relates even today to stocks and shares and the rights of private capital. A proven fact is one which points to commodity financial futures not appearing on Wall Street until the mid 1970s as a response to alleviate supply shortages in global oil markets caused through the failed effort of OPEC to introduce a cartel. The first official commodity exchange regulator did not materialise until the US initiative to establish the CFTC in 1975. Commodity exchanges developed first as commercial marketplaces facilitating trade in items as diverse as metals, hides, eggs, butter, milk, silk, fabrics, rubber and oil decades before the involvement of government and financial institutions in the buying, selling and regulation of investment markets.
The fact these organisations are heavily involved today or act to influence market gyrations sometimes excessively while providing increased trade liquidity, should not detract from what a commodity exchange remains, marketplaces driven by commercial buyers and sellers of raw materials (commodities) needed for physical delivery.
Facts concerning Regulation
The Kansas Board of Trade first opened in the 1848, the London Metal Exchange by 1877, while the Securities & Exchange Commission (SEC) did not arrive until the 1930s, and was then a body focused on the financial regulation of banks which had run riot speculating on shares with private savings causing the 1929 Wall Street crash. The SEC plays more or less a similar role today. Equally, in 1850 there was no EPA, or REACH, despite their existence proving welcome developments in recent years granted. The UK FSA is less than twenty years old. Commodity exchange regulation was and remains primarily self-regulation by the various exchanges themselves supported by registration and use regulations developed formally in legislation through REACH and other formal agencies of state.
Proven Adaptive Ability
The commercial commodity exchange system has proven for almost two centuries capable of serving competing interests in other more established materials markets. That is a commercial, practical and economic fact. Why then does the nanomaterials industry in general and regulatory interest in nanotechnology acting to pursue and deliver appropriate regulations, not rush to embrace it? The open market is for all; from the small or large supplier seeking a buyer for the material produced, from the buyer seeking trade assurance on standard, delivery and price, to the insurer seeking to quantify what is to be insured and why, to the regulator needing to determine exactly what is being exchanged, to the researcher needing to assess trends. Suggestions that nanomaterials are too diverse to be beyond the capacity of the commodity exchange process to accommodate are wholly inaccurate and fail to account for the multitude of variants of commodities which currently trade on formal exchanges in accordance with clearly defined member and customer rules and regulations. There can and will be any infinite number of functionalised variants of raw materials derived in whole or in part from nanomaterials, all of which can use the exchange process to facilitate agreement on standards, characterisation techniques, contract size, delivery and cooperation with regulatory necessity. INSCX exchange is to launch with an initial product offering of the more common and established nanomaterials and developed nano-enabled bulk polymers and nano-enabled fuels to cite but a few variants. This product offering will be constantly updated applying the Round Robin methodology to determine material characteristics, defined characterisation methods, financial, reporting, insurance and other trade particulars similar to any listed commodity.
Suppliers are welcome to supply to the formal specification to meet buy interest requiring physical delivery of the listed material. The listing of further functionalised variants submitted by supply and buy-side interest for formal listing in both encouraged and welcomed. Each variant will underwrite the integrity of proprietary Intellectual Property, cite material and financial characteristics pertaining to the unique variant, be permitted full commercial insurance and trade for cash and forward settlement while the material specification will be submitted for formal appraisal to ISO Committee 229, registered with REACH or whichever is the appropriate regulatory registration body. All trade will be reported in nominee enabling anonymous trade with an audit trial which will reveal the full identity of counterparties to the trade where ordered as necessary in law. These constitute basic conventions adhered to by any organised exchange. Many within nanomaterials appear confused as to why any such basic mechanism might be needed, but yet expect to instigate a second industrial revolution. Regulators may also be perplexed as to why an exchange is necessary.
The question posed by INSCX in response is two-fold but simple:
What is the alternative blueprint envisaged by doubters and perhaps opponents of the exchange process to deliver a commercial framework capable of delivering commercial usefulness in nanomaterials while safeguarding societal interests? Given that we all supposedly aspire to enable nanomaterials to compete with existing raw materials, when can anyone suggest the alternative blueprint to the open market will become manifest?
Promise in the midst of Gloom
While the efforts of REACH and other official agencies are needed and fully supported, it remains the opinion of INSCX exchange that any serious attempt to commercially regulate nanomaterials should involve the establishment of a formal regulatory body within the European Commission, the United States and other regional areas of the globe which this exchange can report trade flows to, where materials specifications and commercial uses and adherence to (SHE) good practice are agreed between commercial buyers and suppliers of nanomaterials through the exchange, where trade is consummated via the open market processes enabling true and fair price discovery.
This market template follows the example of other raw materials markets, mature markets that commenced exactly where nanomaterials finds itself now, in a state of flux and confusion on matters pertaining to demand assessment, supply capacity and regulation. Any history of the first industrial revolution points to chaos and a scramble to develop commercial sustainability through proving commercial usefulness. Society in the past faced massive migration from rural to urban areas creating chronic food shortages, while industrial potential sowed the seeds for a near manic scramble to access materials resource to build ships, trains, power stations, roads, communications networks and the entire apparatus of an industrial society. While the past faced very real and obvious crisis, we in nanotechnology are a little more fortunate, although the window of comfortable and continuance of a caviller approach to commercialise is fast evaporating. Nanotechnology has to deliver and deliver quick as our world does face a series of crisis from needing to deliver sustainable and climate friendly sources of energy, better medical technologies and a raft of new initiatives.
Nanotechnology is the modern scramble that has through lack of clear commercial structures squandered the benevolence of private capital. State capital as a consequence of recent financial turmoil is on hold or the casualty of threatened cutbacks. All of us are ignoring the fact that the confidence of investment capital can be rebuilt quite easily and the climate of austerity and diminishing returns from "traditional investments" favours a new lease of life for nanotechnology. Any analysis of capital investment trends throughout history proves the benign willingness of capital to seek out the possibility to maximise return, and with global capital funds hardly beating real inflation by way of return, now is the time to again kick start nanotechnology. One core tenant of any commercial strategy needs to be that of the open-market process in the allocations of the raw materials base which underpins nanotechnology and dovetails with regulatory necessity. The formal market process has long combined adherence to established financial regulations in anti-money laundering and instigated anonymous trade reporting as a means to discover price fully supported by full counterparty disclosure when ordered in law.
This combines with a methodology to enforce on market participants both discipline and adherence to any practical and obligatory official regulations designed to safeguard societal interest. The process combines to enable practical regulation of materials to be based on the defined parameters of the material/s that are actually exchanged while meeting the basic requirements to first demonstrate and then deliver commercial usefulness.
Many people are often confused between legislation and regulation in the context of exchange regulation, particularly commodity exchange regulation. Regulation or legislation such as REACH has always existed in one form or another and financial regulation covers both Recognised Investment Exchanges (RIE) such as the Chicago Mercantile Exchange, which trades investment grade commodities, and lesser known and long established financial regulations which relate to any financial transaction. The latter legislations include the law of contract which dates from the 16th century and supervision of financial transactions have long adhered to anti-money laundering conventions. These are not necessarily to be regarded as exclusive to commodity exchange regulations, as many exchanges facilitate trade in non-investment grade materials. By and large all commodity exchanges are Self-Regulating Organisation with rule books that govern the activities of the exchange and its members which include suppliers, buyers and speculators. Commodity exchanges need more comprehensive rules given the extent of liability exposure underwriting the trade and materials integrity of the trade, but almost every business transaction involves adherence to some for of rules. At its most basic we see this with even Ebay.
These self-regulatory structures of all commodity exchanges are positively disposed to dovetail with official regulations such as those listed by REACH. Within the EU there is no official Commodity regulatory body for existing commercially exchanged or investment grade commodities. The EU does not have the equal of the CFTC as is the case in the United States. The CFTC is however is primarily a financial regulator of investment grade commodities, similar to the FSA for example, which regulates investment trading in the United Kingdom. Nanomaterials are not yet considered investment grade, and will take many years to develop this status if at all in the absence of a formal, open and transparent exchange process. It is a proven fact that no material exchanged in the absence of clearly defined standards and trade flexibility will sustain commercial traction if required to any degree of abundance as a raw material. Industries that have not developed these practices tend to be the remit of large multinational conglomerates where small suppliers cannot get a look in. continuance of existing commercial strategy will not only serve to confuse regulators further, inviting a reactionary as opposed to objective response, but pave the way for the emergence of a powerful and anti-competitive cartel in nanoscience.
Nanomaterials suppliers are by and large small concerns many lacking capital resource and a clear route to market. Should the market continue to develop in the fragmented manner thus far evident, only the very lucky small suppliers will survive as independent businesses. This may prove so increasing the likelihood nanotechnology will over time graduate to be dominated by the larger organisations that are currently cash rich and in a position to upscale raw nanomaterial supply capacity rapidly, fund fees to ensure compliance through a thicket of bureaucracy, while they have resources available to develop market demand for new nanomaterials and products from scratch. Quite apart from the very real danger commercial usefulness develops reliant on the disposition of the more resourceful, if at all given development of limited as opposed to multi-supply sources, most small nanomaterials suppliers will either fall by the wayside or find themselves small divisions with limited autonomy inside larger organisations.
Innovative potential in such an event runs a clear risk of being stifled at birth, as many of large organisations are today only find their feet in nanoscience. A clear temptation will exist, and is to some extent evident already, to act in a manner which restricts innovation until large companies can move to adjust their respective business models to integrate and embed the radical nature of nanotechnology. This may in turn ensure investment by national government in research and development thus far results in limited benefit and is accrued over time only as a reward, not for the small inventor or the university spin-out, but rather as a dividend paid to the institutional shareholders of large, publicly listed companies. Converting any large company to a position where it can downsize plant and facility to reallocate capital to embed new and innovative production techniques is always a gradual process of transition, not instant.
INSCX exchange, similar to the original commercial commodity exchanges of the past, which now facilitate trade in all the commonplace commodities we use today, provides the ability for small nanomaterials producers to compete in a market increasingly in recent years becoming dominated by larger organisations. Participation with INSCX exchange, similar to the small farmers, innovators and merchants over a hundred and fifty years ago, sets the stage for organic, structured and compliant growth reliant on the innovation, and vision shared by all in the field over the past twenty years, not just the larger players who now realise a need to play catch up. The exchange process permits competition on equal terms.
Regulation for Innovation
While REACH and a whole raft of legislations exist to ensure registration of materials and observance of other necessary legislations, and various official bodies exist to protect the interests of private capital committed to trade of investment-grade financial instruments, such as the FSA, a formal body within the EU, where trade in nanomaterials can be reported by these commercial and investment grade commodity exchanges alike would in the context of nanomaterials further enhance their commercial usefulness and serve as a reference benchmark for all vested interests. To establish this mechanism commercial suppliers and buyers of nanomaterials have already been invited to supply and source to material contract specifications listed for trade on INSCX exchange both to exchange and supplier grade. As regards any supplier grade, (Materials specifications where a single supplier holds proprietary intellectual property right), full provision for reimbursement of IP royalties can be agreed between the IP owner and the exchange and built into the formal exchange contract specification to ensure payment of royalty on the occasion of trade regardless of supply origin.
The need to safeguard Intellectual Property is a very real concern among most if not all research centres and small nanoproducers, and has acted as a barrier to full and open cooperation with national and international regulators. The shared common interest is compliance restricted by a commercial need to safeguard proprietary innovation. The end result very often of this stand-off proves commercial stagnation. Regulators quite rightly require disclosure and industry cooperation, while inventors require some methodology to enable openness in a manner which does not undermine their ability to exploit an innovation. Lack of capital resource in the hands of small innovators at seed capital level, leads many to seek sanctuary and salvation through forming strategic alliances that undermine autonomy.
The methodology proposed by INSCX exchange may offer a mechanic to combine regulatory need with a sense of commercial self-preservation. This procedure where ownership of proprietary IP remains the property of the proven owner is a long established commodity exchange procedure which removes the reluctance and indeed ability of small suppliers of new materials to open to both official regulatory requests and acquire supply capacity from a position where an industrial scale demand can be tested and developed. It is a known fact that small nanoproducers lack financial resource to assess market potential, recruit sales teams and resource to build supply capacity. Very often they are forced into exclusive licensing agreements with larger organisations, thus surrendering autonomy and the material to a single supply source, the latter factor which restricts the ability of the material to develop as an industrial scale raw material. This is confirmed when we consider a main worry shared by any potential buyer of a raw material needed to produce an application or product for resale would be supply capacity assurance from multiple as opposed to singular supply sources if anything to guard against the emergence of a monopoly and excessive price volatility, factors which restrict commercial usefulness.
The ability for small nanoproducers to list a research grade nanomaterial for trade where on the occasion of any trade the exchange reimburses IP royalties, permits the material to develop multiple sources of supply, a necessity for any buyer needing to use it, and the market to develop where the small nanoproducer is not forced through lack of capital to surrender IP autonomy or waste capital developing a market presence. The small supplier can simply permit the market to be developed naturally by the larger, more cash rich companies and join in supplying to its existing capacity to supply bolstered using access to exchange trade finance to compete for the larger order. Should the market develop significant demand interest the small supplier being the owner of the IP always receives a royalty on the occasion of trade at any rate and can upscale organically to be among the ranks of the many suppliers needed to meet buyer multi-supplier requirements. A condition to safeguard against off-exchange transactions thus ensuring the inventors continued access to visibility can easily be incorporated into the IP filing and the official exchange contract rendering such transactions illegal. As potential buyers are more likely to favour the open market process of trade, and the inventor always owns the IP who gains?
Firstly the small producer gains. Secondly, government support agencies do not have to stump up capital to enable the small producer to expand. Thirdly, the material trades to standards observed elsewhere in the exchange of any exchange listed raw material making use a more attractive option, and the small innovator get an opportunity to compete in a market without surrendering IP autonomy. Finally regulators can use an assessment of the commercial template to continue research into regulations required.
In general terms the merits of INSCX exchange are finding greater acceptance at present within financial and commercial circles expressing interest in the use of nanomaterials than with the political circles and the wider nanomaterials industry. Acceptance of the trade logic of nanomaterials needing to meet the needs of buy-side interest in these materials is gaining ground. INSCX exchange will continue efforts to correct this obvious imbalance in commercial logic to persuade politicians and nanomaterials suppliers of the merits of INSCX exchange.
Both national governments within the EU and the wider nanotechnology industry are being presented now with an opportunity to follow what is accepted as base commercial standards in the global economy through participation with the INSCX exchange project, a mechanism needed to quantify and first develop and then deliver a sustained commercial usefulness for raw nanomaterials.
Expressions of supplier interest in the exchange from certain areas of the globe, United States, Canada, Australia and Russia in particular, have thus far been encouraging.
In stark contrast, the response from within the EU has been non-existent to date. In once celebrated incident an attempt by INSCX exchange to discuss matters with a REACH official attending the DEFRA sponsored nanomaterials stakeholder forum resulted in a request from the official to be removed from the exchange mailing list. This limited response where no realisation is attached to actually assess the commercial origins and rationale of the 49 global commodity exchanges that helped develop the commercial usefulness of the commodities needed to drive the existing global economy, nor any willingness to embrace the commercial need for nanomaterials to develop a formal exchange process which meets the interests of potential buyers, and upscale capacity makes a totally mockery of any claim to aspire to a situation where nanomaterials drive a second industrial revolution. This is a proven, historical, commercial fact.
A key difficulty remains to convince individual nanomaterial suppliers of the fact what they engineer are in effect just raw materials as opposed to all nanomaterials being classed as special. Nanomaterials are quite correctly unique and innovative, but nonetheless are materials needed to further effort to deliver an end-application, capacity or good in much the same respect as any commodity, be that a metal or a fuel.
What appears lost on most suppliers within the EU is any real appreciation that industrial scale demand requires these materials or commodities to be traded in accordance with firmly established trade and materials standards in addition to common observance to Health & Safety good practice.
The fact remains most nanomaterials as even composites cannot currently compete with traditional materials in terms of supply capacity, price, trade flexibility and standards. Supply capacity within traditional materials was a deficiency shared at one point or other by every raw material throughout economic history. The difficulty posed in the past was overcome through application of commodity exchange trading methodology where upscaling was financed through the exchange process and demand encouraged through observance of basic standards in trade to include transparency and the making available of greater trade flexibility and price hedging techniques.
Approach to Standards
Standards are continually evolving in nanomaterials given the industry's commercial infancy. Nanomaterials suppliers must be provided with the opportunity to first develop what is proposed for trade and then an opportunity to structure formal trade procedures which are then presented for regulatory assessment. Most if not all of the commodities our global economy relies on to deliver applications and end-goods today underwent a similar process and achieved the desired end-result through first adopting procedures long established through the methodology of the commodity exchange. It is proposed by INSCX exchange that all materials listed for trade be sourced (SHE) compliant in accordance with the parameters of the Nanomaterials (SHE) Accreditation Scheme, an accreditation scheme endorsed by the Institute of Occupational Medicine, independently validated using the services of IntertekMSG, the nanomaterials arm of Intertek Plc one of the world's most respected materials measurement and characterisation agencies. In addition, all materials listed for trade are to be insured in accordance with parameters defined by Commodity Insurance providers who are syndicate members of Lloyds of London, one of the world's largest insurance markets and afforded access to trade finance and forward trade ability.
A contract specification relates to a clear definition of the materials and financial particulars of trade. All INSCX listed contract specifications will traded in an open market process, formally insured and filed for consideration to ISO Committee 229, the International Standards Organisation committee relevant to nanomaterials, the Institute of Occupational Medicine (IOM), AssuredNano™, the Nanomaterials (SHE) Accreditation Agency, national regulators such as REACH and the US EPA and independently certified good quality (CGQ) by IntertekMSG. These are the procedures observed by other commodity exchanges where trade in listed commodities such as grains, oils, metals and other products are facilitated. Our question to nanomaterials suppliers and the EU Parliament is to ask why should nanomaterials, as raw materials be any different? Aside from a societal perspective, these are the basic standards required by buyers.
The overall supervisory body of INSCX exchange is the voluntary elected Board of Governors. Several Board members are long involved at the highest levels worldwide in debating good industry practice within our industry. Others are seasoned commodity market professionals including a lead consultant to UNCTAD/World Bank and the Common Fund for Commodities. As a collective, the Board and exchange steering committees are certainly qualified to debate any issues regarding the subject of Health & Safety and commercial trade requirements pertaining to nanomaterials. The European Union therefore, as with any other regional and/or national parliament, are invited to establish definitive lines of contact with this exchange so matters of concern to national and regional governments can be discussed rationally and objectivity based on a thorough assessment of available facts and commercial practicalities.
Given recent calls for outright bans, we call on the EU Parliament Committee to liaise with the exchange to discuss whatever concerns are held by the Committee to establish whether indeed there is any basis to justify any outright ban on the trade of certain materials in the first instance, and in light of difference in application of these materials within defined economic sectors and use areas. As regards nanomaterials suppliers within the EU, we suggest they follow the lead taken by suppliers in other regions of the globe to assess the merits of the exchange project objectively, as INSCX exchange delivers the very same commercial initiative taken by suppliers of the raw materials that drove the original industrial revolution. A failure to recognise the historical significance of the commodity exchange process will merely serve to continue the fragmented evolution of nanomaterials to the detriment of sustainable and compliant commercialisation. INSCX exchange is the opportunity for nanomaterials suppliers worldwide to demonstrate commercial usefulness. All any supplier has to do is join the exchange and execute trade instructions reliant on exchange approved brokers, not become an expert in the complexities of formal commodity exchange trading. The broker's objective is to increase a suppliers' willingness to use the exchange through demonstrating how using it as a means to do business in the first place can help any supplier plan, structure, compete and grow organically as opposed to having to rely on leverage. The choice to do so is for the supplier.
Pointing to the fact commodity exchanges are long accustomed to dealing with national government and regulatory agencies since the industrial revolution on matters of concern, an exchange spokesperson added,
"Whatever regulatory changes are proven necessary, our members will comply with as a matter of course naturally. However, that stated we insist the nanomaterials industry, similar to any other be afforded the right to determine beforehand whether any basis exists in fact to warrant the proposed regulatory alterations specific to defined commercial use. Too often in the past it has become commonplace to rush to judgement in the context of nanomaterials enacting reactive legislative changes in the absence of objective clarity. Our concern in light of the recent call by the EU Parliament relates to the fact our industry needs an opportunity to assess whatever, if any, basis has been established in fact to justify the proposed changes and an opportunity to present a case for regulatory changes to draw a distinction based on individual application as opposed to any move to instigate outright blanket bans on materials with generic use."
Any enquiries with regard to the content of this release should be directed to the exchange Press Office which can be reached at: Nanomaterials suppliers and members of the European Parliament's Committee on the Environment, Public Health and Food Safety (ENVI) are invited to submit observations and comments with regard to the suggestions listed in the Release to:
Board of Governors:
Nanomaterials Industry Response:
Issued on behalf of
August 6, 2010
About INSCX exchange
Integrated Nano-Science & Commodity Exchange (INSCX exchange) provides an open, transparent and compliant route to market for nanomaterials and nano enabled commodities. INSCX exchange is a member, rule-bound, electronic (ECN) commodity exchange. Commodity exchanges have been used since the 16th century to structure efficiencies in the allocation of raw materials. From enabling trade in grains, metals, polymers, oils, materials, agricultural and other products, the world's exchanges have interacted to deliver the essential variables of price discovery, material standards, global reporting and trade integrity.
Building on centuries of exchange heritage, INSCX serves the risk management and commercial trading needs of global customers particular to the manufacture, use, application and exchange of engineered nanomaterials. We are the world's only source of benchmark nanomaterials futures and options products available on any exchange, covering all eleven Thematic classes.
Our vision provides the marketplace to empower nanomaterials to realise their potential as the alternative, precision-engineered materials of the future.
For more information, please click here
Board of Governors:
Nanomaterials Industry Response:
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