Dubai Mercantile Exchange

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Dubai Mercantile Exchange
Dme logo.jpg
Founded 2007
Headquarters Dubai, UAE
Key People Christopher Fix, CEO
Products Oman crude oil
Website www.dubaimerc.com

The Dubai Mercantile Exchange (DME) was launched in June 2007, a joint venture between the Dubai and Omani governments and the New York Mercantile Exchange, whose stake is now controlled by CME Group. It marked the latest effort to establish a Middle East crude oil futures benchmark. The exchange is one of four backed by the emirate as part of its effort to create a global financial services hub.

The Dubai Mercantile Exchange was ranked as the world's 50th-largest derivatives exchange by volume in 2010, moving up one position from the year before, according to the annual volume survey published by the Futures Industry Association (FIA).[1] The FIA report, published in March 2011, notes that the exchange's total volume for 2010 was up by 34.5 percent from the previous year, reaching 744,727 contracts.

Background

The DME's electronic platform includes a “virtual trading floor” in its headquarters at the Dubai International Financial Centre, and lists the physically-delivered Oman crude oil futures contract and two financially-settled contracts, the Brent-Oman Financial Spread and the WTI-Oman Financial Spread.

Contracts are cleared and settled by the NYMEX clearinghouse, and the exchange is regulated by the Dubai Financial Services Authority. The exchange received regulatory approval to accept OTC trades in the Oman contract, submitted through the NYMEX ClearPort portal.

In November 2009, the DME announced plans to offer new Oman crude oil trading products in the first quarter of 2010 to boost volumes on the exchange.

History and Ownership

The DME emerged from the combined efforts of the Dubai government to establish a range of exchanges in the Gulf emirate and plans by the NYMEX to expand in Europe and the Middle East.

Approximately 60 percent of the world’s crude oil reserves are located in the Gulf region, yet until the DME’s launch there was no sufficiently transparent pricing mechanism for Middle East sour crude oil.

The exchange was slated for launch in early 2006, but the final design took a further 18 months, with its backers opting for a fully electronic platform with a hybrid floor element after considering an open-outcry pit in addition to screen-based trading.

The exchange started as a 50/50 joint venture between Tatweer, a member of state-controlled Dubai Holding, and NYMEX, which contributed capital and services. The Oman Investment Fund (OIF) acquired a 30-percent stake in November 2006, reducing the holdings of the founders to 32.5 percent, with floor traders holding the remaining 5 percent. The delayed launch saw the IntercontinentalExchange emerge in May 2007 with its own Middle East sour contract, sparking another spat between the rival US exchanges[2]. However, both contracts have struggled[3].

In August 2008, Goldman Sachs Group, Morgan Stanley and four energy-related companies - Royal Dutch Shell, Vitol, Concord Energy, and Casa Energy Trading - took minority stakes in the DME.[4]

In September 2008, Thomas Leaver replaced Gary King as the CEO of the DME. Leaver had previously served as the exchange's COO.[5]

In February 2012, the CME and Oman Investment Fund said that they would raise their respective stakes in the Dubai Mercantile Exchange to support its expansion. CME Group’s NYMEX division would double its holding to 50 percent, while Oman’s sovereign wealth fund would own 29 percent of the Dubai exchange. Other stakeholders would see their holdings diluted because they did not invest additional funds. A unit of Dubai Holding LLC, one of the emirate’s three main holding companies, would retain 9 percent, while 12 percent would be held by investors including Vitol Group, Royal Dutch Shell Plc (RDSA), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and Concord Energy Inc.[6]

In March 2014, the Dubai Mercantile Exchange and TOCOM signed a Memorandum of Understanding to strengthen their cooperation in promoting the development of energy contracts, in particular crude oil, which is listed on both exchanges.[7]

Membership

The DME offers three classes of membership - floor, off-floor and clearing - though trading is not limited to members,[8] off-floor members,[9] and floor members.[10]

Floor members: Members who own one or more floor membership privileges and physically occupy one or more of the 50 seats located on the DME's trading floor.

Off-floor members: Members who have the right to access and to trade on the trading platform off the exchange floor.

Clearing members: All current NYMEX Clearing Members are able to apply for DME Clearing Membership to clear DME transactions. Clearing members also have the right to access and to trade on the trading platform off the exchange floor.

Key People

On March 7, 2012, it was announced that CEO Thomas Leaver would leave his position at the exchange to pursue other interests after six years of service. The board of directors appointed a transition committee to oversee the search for his replacement. Leaver was to support the committee until a new chief executive would be hired.[11]

On June 21, 2012, it was announced that Christopher Fix would replaced Leaver as CEO.

Board of Directors

Products

Regulation

The DME is authorized and regulated by the Dubai Financial Services Authority (DFSA), an independent regulator. All trades executed on the DME are cleared through and guaranteed by the clearing house of the New York Mercantile Exchange, which is recognized and licensed by the DFSA.

Approved Jurisdictions

The DME has received approvals and letters[12] of 'no objection' from overseas financial services regulators from the following jurisdictions that will allow traders in those locations to access the DME via DME Direct.

Approved Jurisdictions

Europe
  • Estonia
  • Finland
  • Guernsey
  • Ireland
  • Luxembourg
  • Netherlands
  • Poland
  • Russia
  • Switzerland
Pacific Rim and Asia
  • China
  • Japan
  • New Zealand
  • Republic of Korea
  • Singapore
  • Thailand
Middle East
  • Kingdom of Bahrain
  • Lebanon
  • Sultanate of Oman
  • United Arab Emirates
North America, South America and the Caribbean
  • USA
  • Bermuda

Annual Volumes

2010

The Dubai Mercantile Exchange was ranked as the world's 50th-largest derivatives exchange by volume in 2010, moving up one position from the year before, according to the annual volume survey published by the Futures Industry Association (FIA).[13] The FIA report, published in March 2011, notes that the exchange's total volume for 2010 was up by 34.5 percent from the previous year, reaching 744,727 contracts.

2009

The Dubai Mercantile Exchange ranked number 51 in 2009 in the FIA's global list of top 53 derivatives exchanges measured by volume, up 67.7% on 2008's volume figure. The FIA list, published in early April 2010, reports that total volume for 2009 jumped to 553,888 from 2008's figure of 330,379.

External Links

References

  1. 2010 Annual Volume Survey. Futures Industry.org.
  2. NYMEX calls rival's Dubai contract a "copy cat". Reuters.
  3. Mideast oil contracts in troubled waters. Financial Times.
  4. Goldman, Morgan Take Stakes in Dubai Merc. New York Times.
  5. Dubai Mercantile Exchange Confirms Appointment of Thomas Leaver as CEO of Exchange as of 1st September 2008. Dubai Mercantile Exchange.
  6. CME Raises Stake in Dubai Mercantile Exchange in Recapitalization Plan. Bloomberg.
  7. DME and Tocom to collaborate on energy products. Emirates 24-7.
  8. DME Clearing Members. Dubai Mercantile Exchange.
  9. DME Off-Floor Members. Dubai Mercantile Exchange.
  10. DME Floor Members. Dubai Mercantile Exchange.
  11. Dubai Mercantile Exchange Announces Chief Executive Transition. Dubai Mercantile Exchange.
  12. DME Approved Jurisdictions. Dubai Mercantile Excange.
  13. 2010 Annual Volume Survey. Futures Industry.org.