IMEX sets it sights on innovation

But with the Dubai Mercantile Exchange's new Oman crude contract not exactly pulling up trees since it was launched on June 1, and the Atlanta based IntercontinentalExchange's Dubai sour crude contract faring even worse, IMEX will be keeping a keen eye on trading volumes.

IMEX was the brainchild of Gulf Energy, a global consortium of energy investors and experts, which provided the initial capital for the exchange and also drafted in the Hess Energy Company and PFC Energy as principal consultants to advise on the creation and design of the exchange's operating mechanisms early last year.

New CEO, new products

Steve McMillan, formerly the CEO Europe of the GFI Group, has now been recruited as IMEX's CEO. During his time at GFI, McMillan established a number of product lines including dry and wet shipping forward freight agreements, carbon emissions credit trading, coal options and property derivatives.

McMillan will need to use all his experience of developing innovative products in order to give IMEX its own niche position in the regional marketplace. The DME's Omani crude contract is of course up and running and it is currently planning a jet fuel offering, while the Dubai Gold and Commodities Exchange is now also providing traders with a range of commodities options, from gold and silver to its recently launched rupee currency contract, with steel and plastics coming later this year.

But McMillan intends to target 'commodities that have not as yet been benchmarked on a global basis' and he hopes IMEX will contribute to increasing the pricing transparency for such products in the Middle East and North Africa as a consequence. He is confident that once IMEX is operational, it will attract both regional and international traders, and the market will become their 'primary trading marketplace'.

A sneak preview

IMEX is understandably reluctant to reveal its specific intentions so far ahead of its launch, especially with other local exchanges looking around for trading opportunities, but McMillan, as quoted by the Dow Jones newswires, maintains he has no real fear of his rivals as the bourse would be using completely new products.

IMEX will say more about its ideas later in the year, quite possibly in the autumn, but reports have suggested liquefied natural gas, of which Qatar is now the world's leading producer, carbon emissions and jet fuel are all on the table as serious contracts options. Some analysts have previously voiced some mild scepticism about an LNG futures contract, as a spot market would be pretty limited with most LNG sales arranged on long-term deals at a fixed price.

Another possibility, which McMillan wouldn't rule out, is the establishment of another crude oil futures contract. This certainly wouldn't be an especially unique product with two Middle East oil contracts having been launched in the past six weeks and IMEX would be taking on both the Nymex backed DME and Atlanta's ICE.

Cool reception

But, aside from the competition factor in the crude contracts sector, a seemingly lukewarm response to the new offerings will also surely give McMillan pause for thought. In the first few weeks of trading, it appears the Dubai Mercantile Exchange's Oman futures contract has seen more business than the IntercontinentalExchange's Dubai sour crude option, but overall volumes have been thin with little interest from Asian traders.

The DME's CEO Garry King has remained bullish about his contract and feels interest will pick up once traders are familiar with the settlement procedure and pricing, but both exchanges have slowed up after an initial flurry of trading and analysts have hinted that, longer-term, only one of the two crude contracts may be sustainable.

McMillan will undoubtedly be following the progress of these futures contracts closely and he will know that IMEX will need to be very innovative in its choice of products to generate a strong response from traders. Indeed, the DME is also now looking at the possibility of launching an LNG contract and it may seek talks with IMEX officials.

When the idea of the International Mercantile Exchange was first unveiled back in early 2006, the likes of the DME were still in the early stages of development, but once IMEX eventually opens for business, it will be entering a competitive marketplace, with rival exchanges up and running and offering increasingly more familiar products.