TBY talks to Gary Anderson, CEO of Dubai Gold and Commodities Exchange, on the emergence of the Emirate as a global hub for commodities trading.
THE BUSINESS YEAR What is the history of the Dubai Gold and Commodities Exchange (DGCX)?
GARY ANDERSON Established in 2005, the DGCX is the region’s first derivatives exchange and the only one that allows participants to clear and settle transactions within the GCC region. The exchange has played a pioneering role in developing the regional market for derivatives, having been the first to introduce futures and options contracts in the precious metals, energy, and currency sectors. The DGCX launched the world’s first rupee futures contract in June 2007 and enhanced the contract further in November 2008 to make it cash settled based on the US dollar reference rate published by the Reserve Bank of India in Mumbai on the last day of trading. This was followed by the launch of an Indian rupee options contract in September, 2011—today the only exchange-traded Indian rupee options product offered in a market outside of India. In April 2012, the DGCX launched its latest contract, copper futures. Dubai is rightly acknowledged as a leading regional trading hub and is ideally located geographically. As with Dubai, the DGCX also acts as bridge between the trading markets of Europe and the Far East, contributing to the global trading cycle. With its geographical location midway between the regions, the DGCX offers extended trading hours to global traders.
You have recently been appointed as CEO of the exchange. What is your incoming development strategy, and what challenges do you foresee?
I am delighted to be the CEO of the DGCX in what is a very exciting time for the exchange. Our strategy, which has served us very well over the last seven years, remains the same; the DGCX will continue to differentiate itself, and it will continue to review its product portfolio to consider improvements to its existing contracts and explore the introduction of new contracts. In 2012, the DGCX will continue to seek to enhance its global reach by introducing new products that appeal to a wider customer base. The exchange plans to launch emerging market currency products targeted at niche customers in the Middle East and emerging market countries. Developing sharia-compliant products, starting with sharia-compliant exchange-traded funds (ETFs), is another one of our key strategic focuses in 2012. Economic expansion and increasing international trade has created the need for market players to hedge their risks from fluctuations in commodity prices and foreign exchange values. With economic expansion, market players need better ways to mitigate the considerable financial and commodity risks they are exposed to. The DGCX has played a vital role in strengthening the UAE’s financial system by providing hedging tools and mechanisms that allow market players to transfer and manage risk within a well-regulated environment. And I’m committed to ensuring that the DGCX’s role in the UAE’s economic growth continues.
How can sophisticated investors from both the Middle East and elsewhere gain commodities exposure in the local market in Dubai? What is unique about what the DGCX offers in the region?
One of the DGCX’s key differentiators is its product portfolio, which covers a diverse range of energy, precious metals, base metals, and currencies. These include the world’s first Indian rupee and steel rebar futures contracts, as well as the first WTI and Brent Oil Futures contracts in the Middle East region. The DGCX’s commitment to innovation and the pioneering of new products, working closely with its members, is also a competitive advantage, allowing the exchange to uniquely introduce new contracts that are required by clients in the region. The launch of our copper futures contract in April, 2012 was a direct result of our close working relationship with our members, as copper futures have been the most requested new contract.
Looking at your range of future contracts/products, where have you seen the most success, and what trends do you see emerging?
Firstly, trading volumes have been increasing. Annual volumes for 2011 on the DGCX registered a substantial growth of 110% from 2010 to reach over 4 million contracts, the highest ever annual volumes achieved by the exchange since its inception. The annual volumes for 2011 represented a value of $185.13 billion. Secondly, currencies drove the majority of volume growth on the exchange in 2011, accounting for 88% of all contracts. Currency volumes in 2011 stood at 3.6 million contracts, an increase of 177% from 2010. Indian rupee futures retained their exceptional growth momentum over the last two years, ending 2011 with 3.2 million contracts—563% growth over 2010. Precious metals accounted for the remaining 11% of the exchange’s total volumes, registering 443,889 contracts. Silver futures emerged as the strongest performer of the year in the precious metals segment, rising by 40% from 2010 to aggregate 44,870 contracts in 2011. In 2012, we believe copper futures contracts will make a significant contribution to our continued success.
What are the key tools that the DGCX offers for managing currency and commodity price risk in the region?
The DGCX offers a number of competitive advantages. Firstly, the trading infrastructure and derivatives products provided by the exchange offer market participants exceptional financial management, risk mitigation, and profit optimization tools, giving market participants a cutting-edge, transparent, and secure technology infrastructure, combined with well-established and stringent compliance and governance standards. Secondly, transacting and clearing trades on the DGCX gives businesses the benefit of being under the purview of robust local taxation and regulatory regimes. The DGCX is regulated by the Securities and Commodities Authority (SCA), a full member of the International Organization of Securities Commissions (IOSCO), an association of organizations that regulate the world’s securities and futures markets. Thirdly, trading on the DGCX gives international institutions the ability to tap the high growth potential of the region’s derivatives market and access the large untapped pools of institutional and private liquidity in the region.
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