By Rhona O’Connell –
Dubai, the self-proclaimed City of Gold, continues to burnish its image as one of the most important physical centres for the gold market and is about to add another dimension in the form of futures and options.
Dubai is perfectly placed for business with the Middle East and India, which between them accounted for 43% of gold fabrication in 2004 (GFMS figures).
Imports in the United Arab Emirates in 2004 are reported by GFMS as almost 195 tonnes last year, with Dubai accounting for the vast majority of the flow, with significant onward shipments of metal into other countries for fabrication into finished jewellery as well as a thriving local business. There was over 40 tonnes of domestic fabrication last year plus Dubai is a substantial importer of finished jewellery.
The Emirates has been developing its role as a centre not just for physical gold trading, but is also broadening the range of financial products available to the market. We have written before about the development of the Dubai Gold and Commodities Exchange which has now reached an important landmark by opening its doors for membership.
The Exchange is the first electronic multi commodity derivatives exchange in the Middle East and will commence trading precious metals contracts in November this year.
Gold futures first, followed by options, then silver futures and options. Fuel oil, steel and freight rates contracts are planned for 2006. It has also appointed its initial clearing banks, in the form of HSBC and National Bank of Dubai.
In the words of David Rutledge, the Chairman of the Exchange and the Acting CEO of the Dubai Metals and Commodities Centre, “DGCX is a key initiative for Dubai and we believe that the exchange will create a dynamic and transparent marketplace, which will generate greater trade flows and associated benefits within the region, including creation of jobs and wealth”.
The exchange intends to attract leading commodities and securities houses and will initially restrict membership of broker and trader categories to 250 each. Broker Members will be able to trade on all market segments of the Exchange (e.g. precious metals, energy, agricultural commodities) either as principals or on behalf of clients. Trade Members will trade only as principals and only in specified sectors. In its first tranche of membership, the admission fees for Broker membership will be US$100,000 and Trade membership will be US$20,000 per sector.
Trading hours are extensive, covering seven days per week from 10:00 a.m. to 11:00 p.m., thus overlapping with trading hours in the US, Europe and the Far East. Here follows a quick geography guide: Dubai is five hours behind Tokyo, four hours behind Hong Kong, three hours in front of London and eight hours in front of New York. So opening at 10:00 catches the Far East from lunchtime onwards, and closing at 11 pm covers the first 90 minutes or so of COMEX.
Trading will be on an electronic platform and all transactions on the exchange will be guaranteed, thus eliminating counterparty risk. The risk management system is state-of-the art, monitoring margins, positions and profit or loss on a real time basis, and will automatically prohibit a member from opening fresh positions in trading limits have been exhausted. The Exchange is to be regulated by the Securities and Commodities Authority and the Exchange is incorporated under the Dubai Metals and Commodities Centre Free Zone Authority.
The exchange’s newly appointed CEO is Mr. Framroze Pochara and he brings with him a further synergy with the Indian market, having served as Vice President of the National Stock Exchange of India.
Chairman David Rutledge has over 35 years’ experience in management of national and international exchanges. The rest of the Board has a wealth of experience and this Exchange looks admirably poised to blend into the bullion market, adding to liquidity and bringing fresh business opportunities.