Dubai Mercantile Exchange To Open in Fourth Quarter

By Maria Trombly | Securities Industry News | July 24, 2006

The Dubai Mercantile Exchange is on track for a fourth-quarter launch that will make it the first international energy futures exchange in the Middle East, according to its chief executive, Gary King. It will operate from a trading floor now under construction in the Dubai International Financial Center (DIFC), and its first product will be an Oman crude oil futures contract.

According to the chairman of the exchange's board of directors, Ahmad Sharaf, the new trading facility will become the center for energy trading in the Middle East.

"Traders from around the world were asked what they would require from an electronic trading floor environment, and their consequent feedback was incorporated," said Sharaf. Reflecting its state-of-the-art nature, the Oman contract will be traded electronically for 23 hours and 15 minutes per day.

The product is geared toward the Asian market as a new tool to manage risk, as the majority of the crude oil from the Middle East flows eastward. The contract will settle at the end of the Singapore trading day, but all contracts will still clear at the New York Mercantile Exchange (Nymex) clearinghouse. According to former Nymex chairman Mitchell Steinhause, the new exchange will fill a time-zone gap in trading between Europe and Asia.

Nymex first started working with the new exchange last June, forming a joint venture with Dubai Holdings, the emirate's strategic investment arm. "The past 12 months have been tremendous in terms of where we were and where we are now," King told Securities Industry News. "It may be one of the most challenging jobs I have had in my career." Appointed CEO last December, King was previously involved in an investment banking joint venture of Australia's Macquarie Bank and Abu Dhabi Commercial Bank.

Next year, King said, the Dubai Mercantile Exchange plans to list a jet fuel futures contract, and "we are working on other contracts. We do not intend on being a one-contract exchange." The organization is also in talks with other exchanges on joint ventures and cooperation agreements, but King did not disclose details.

Hoping to create an international financial capital, the Dubai government set up the Dubai International Financial Center in fall 2004 as a financial free-trade zone, with an international legal framework, English as the official language and prices quoted in U.S. dollars. Firms operating in the 110-acre zone are eligible for benefits such as a zero tax rate on profits, 100 percent foreign ownership, no restrictions on foreign exchange or repatriation of capital, operational support and business continuity facilities.

Wendy Yu contributed to this report.