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DGCX introduces trading in two crude oil contracts
The Dubai Gold and Commodities Exchange (DGCX) will start trading in its cash settled West Texas Intermediate light sweet crude oil and Brent crude oil futures contracts today with two of its members offering market making.
- By Babu Das Augustine, Banking Editor
- Published: 00:06 May 27, 2008
Dubai: The Dubai Gold and Commodities Exchange (DGCX) will start trading in its cash settled West Texas Intermediate light sweet crude oil and Brent crude oil futures contracts today with two of its members offering market making.
"Two of our members will be offering two way quotes (buy and sell) on these two cash settled contracts from day one. We believe market making is going to help the overall liquidity on the market," Malcom Wall Morris, chief executive of DGCX told Gulf News on Monday.
The cash settled contracts will go live on DGCX at 8.30am today and have attracted global interest from members, traders and industry players.
All trades in these new contracts will be settled in the UAE which means investors need not transfer funds and once the members have been approved by the Emirates Securities and Commodities Authority (ESCA) they need not deal with additional regulators overseas.
All members of the DGCX can trade in these new contracts anywhere in the world. However, in the US they cannot do business on their clients' behalf.
"We are in the process of applying for Commodity Futures Trading Commission (CFTC) clearance to allow our members to market our products in the US," Wall Morris said
Jurisdiction
DGCX is also working with other jurisdictions to get their approval.
"At the end of last year we received approval from the Monetary Authority of Singapore (MAS) to offer our products directly to 'professional and accredited investors.
"Today, we have received confirmation that MAS has also approved the same access for our new crude oil contracts."
On June 2 the Dubai Mercantile Exchange another Dubai-based commodities exchange regulated by the Dubai Financial Services Authority will launch two cash settled contracts on the DME Oman sour crude and Brent benchmarks.
Welcoming competition, Wall Morris said there has been phenomenal interest from all major market participants from the region and across the world such as oil companies, investment banks, and investment funds in the new contracts and there is enough space for both sets of contracts, which will eventually offer arbitrage opportunities.
Opportunities
"More contracts and more players will offer better price discovery mechanism and arbitrage opportunities between exchanges," he said.
In the context of exchange consolidation many international banks are uncomfortable with the rising costs and they are demanding fungibility.
"Most banks want cost efficiency and that is where they are demanding fungibility of contracts. But if the cost efficiency can be offered with multiple contracts and flexibility to trade across the world the fungibility is automatically achieved," he said.
The contracts will trade from 8:30am to 11:30pm Dubai time (0430 to 1930 GMT).
Each DGCX contract comprises 1,000 barrels and is quoted in US dollars per barrel.
The minimum price fluctuation will be one cent per barrel, equivalent to a tick value of $10.00.
DGCX has announced that a fee waiver will be in place for these contracts from May 27 to August 26.
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