DMCC, DGCX and DME: Why they remain successful (page 1 of 2)

By Gerard Al Fil

Both markets are based in a free zone. The DGCX is part of the Dubai Multi Commodities Centre (DMCC). The DME is based in Dubai International Financial Centre (DIFC). Therefore they offer trading members 100% ownership, free capital flow and a 50-year tax holiday.

At the DGCX, producers and traders of Gold and Silver can hedge themselves against future price fluctuations by buying or selling futures or options (options exist only for Gold). This makes the DGCX, founded in November 2005, a platform for any market environment.

At the DME, oil producers, traders and petrol-dependent firms such as airlines or shipping companies can likewise use derivatives in order to protect themselves against losses in the future. Whether oil prices skyrocket, as they did from 2005 to mid- 2007, or if they stay volatile on a reasonable level (as now), oil futures are integral part of the business.

Constant market demand

Both exchanges are fully electronic trading platforms. They are also the only international derivatives markets in the time zone between London and Hong Kong. On March 1, the DGCX recorded its highest ever daily volume, trading 19,255 contracts at a record notional value of $1.27bn. Besides futures and options on precious metals, the DGCX also lists currency derivatives as well as oil and steel futures. Among its clearing members are Deutsche Bank, J. P. Morgan Securities or Mitsui & Co. Precious Metals Inc.

The DME announced on March 4 that a new record total open interest of 19,867 was achieved in its flagship DME Oman Crude Oil Futures Contract (DME Oman) in February 2010. The DME also achieved a new record for physical delivery of 13.4 million barrels for delivery in April 2010, surpassing the previous high of 11.6 million barrels set in September 2009. 'DME Oman has demonstrated its strong and effective link to the underlying Oman crude physical market since inception and we continue to build on this for the benefit of our customers and stakeholders alike', says DME Chairman Ahmad Sharaf.

Compared to the Nasdaq Dubai, which saw trading volumes picking up only two years after its inception in September 2005, both commodity markets are going from strength to strength. So what have the DGCX and the DME done better?

There are two reasons:

Firstly, the DGCX and the DME both attracted experienced chief executives from the very beginning and then retained them. Dr David Rutledge established the DGCX from scratch. Rutledge joined the DMCC in 2003 and brought decades of experience to the DGCX and served as Chief Executive for the Sydney Futures Exchange. Rutledge was eventually replaced by Malcolm Wall Morris in November last year. Morris joined the DGCX at the end of 2007. At the DME, a joint venture between Dubai Holding's Tatweer, Oman and the New York Mercantile Exchange (NYMEX), Gary King was brought in as head, equipped with two decades of leadership roles at Emirates National Oil Company and Morgan Stanley, among others. The Nasdaq Dubai, on the other hand, saw three CEOs joining from outside within its first three years of operation.

Secondly, the DGCX and the DME are more independent of the economic climate, while the Nasdaq Dubai, as an equity exchange and a bond and derivatives trading platform, is dependent on the economic cycle. Pure commodity derivatives exchanges, however, offer a service to any industry involved in production, transport, or delivery. The latter markets also do not need momentum from well-planned IPOs.