Dubai: Trading volumes on the Dubai Gold and Commodities Exchange (DGCX) could see a jump on the back of arbitrage business as the Singapore Mercantile Exchange begins trading by the end of this month.
With futures trading in gold, currency and West Texas Intermediate and Brent crude oil, both exchanges will provide a platform for a similar basket of commodities.
"If there is a price difference between the two exchanges, there could be some volume pick-up on both," said Pradeep Unni, commodities analyst at Richcomm, a brokerage firm. "Other than that, the impact [of another exchange being launched] on Dubai's commoditites trade will be minimal," he said.
However, regulations on both ends could limit investors trading across the two exchanges. UAE's regulator, the Securities and Commodities Authority, permits a few brokerage firms and a few companies to represent traders in the country, while rules also restrict them from being members of other exchanges.
Thomas Leaver, chief executive of Dubai Mercantile Exchange, told Gulf News: "As Asia's economies play an increasingly influential role in regional and international energy markets, the region's oil producers and consumers are looking to manage their price risk more effectively.
"This has been clearly demonstrated by the growing success of the DME's Oman contract, which has become the most transparent and credible global pricing benchmark for Middle East crude bound for East of Suez markets. The emergence of the Singapore Mercantile Exchange is further welcome evidence of the region's continuing growth and enormous potential."
Sajith Kumar P.K., a commodities analyst with JRG International, added: "Singapore is not reachable [for local investors]. Fund transfer is also not permitted in Dubai, so investors will face difficulties."
The impact on the Dubai Mercantile Exchange is expected to be minimal since its core focus is energy, specifically the Omani Sour Crude Oil Futures Contract, that brings a different crude oil benchmark to the region.
"As far as the world exchanges are concerned, it is a positive moment where Singapore Mercantile Exchange can penetrate the market. The result is… investor awareness will be increased. Also, due to the information they get from their brokers, investors will benefit," Kumar said. He said investors can decide which exchange to trade on with increased education.
"I don't [think] Dubai investors will move to Singapore. If they want, they can reach directly to other US and UK exchanges that are also well regulated," he said.
