Dubai: Diversifying away form its derivatives focus, the DGCX is all set to launch a spot gold contract this year that will make Dubai a major price discovery centre for the precious metal.
“We are working on the spot gold contract’s specifications and timing the launch. We expect to launch it next 2 to 3 months. The reason for the spot gold is to create a contract that is very much regionally and Dubai relevant asset class,” said Anderson.
Now up to 40 per cent of the gold traded in the world comes through Dubai. The city has a robust gold ecosystem that constitutes of importers, refiners, exporters, an active gold trading market and a derivatives market. One thing missing is the physical spot gold trading and benchmarking.
“What we are attempting to do is to bridge this gap. We have a fully internationally compliant vault and storage facility we will also be utilising the trade flow system of the DMCC. It is the warrant system. We will use that as part of the delivery mechanism,” he said.
The exchange expects to attract multiple users of gold ecosystem to participate in this contract such as mining companies, refiners, fabricators, traders and international banks. Primarily it will be a spot gold price discovery platform and will be fully deliverable. So the price that is seen on DGCX’s screen will be the price for spot gold in Dubai for delivery.
One of the benefits of trading in spot gold on the exchange is that the trade is cleared through the clearing house making it a much more efficient way of trading in Gold from a collateral perspective. In this type of trade, counterparty risk is virtually eliminated as trade is routed through clearing house. In simple terms once a trade is executed, the clearing house becomes buyer to the seller and the seller to the buyer and then it does all the collections and payouts and there is no need for bilateral credit limits.
In equities, DGCX has plans to strengthen its relationship with MSCI and created equity derivatives on UAE and GCC indices. “The equity markets in the region are developing now and it needs a derivative component. One of the issues is that there are two indexes that cover the UAE, really we need one index that captures the whole UAE market that will give people to participate in the UAE market,” said Anderson
Equity derivative are expected to attract both institutional investors and professional traders who trade equities. The key advantage of a product like the futures is that the investor can broaden the risk taking to a whole basket of shares rather than to a few stocks. From an international perspective too, a future product is more relevant as it reflects a broader view of the economy rather than volatilities in individual stocks.
The exchange has been looking for opportunities to launch futures contract on agricultural products form sometime. “It has always been there on our product radar. This again is one area where we are trying to leverage on the trade aspect of Dubai. Anything between 10 to 15 per cent world crops come through Dubai. We have brought is a commodities expert on board who will be looking at certain products we would look to launch in quarter 1 and quarter 2. One of the things we have been looking closely is black pepper again the idea is to leverage the trade aspect and make it regionally relevant.