Dubai sticks to electronic trading

The Dubai Mercantile Exchange will offer only electronic trading when it opens later this year, ending speculation that the exchange, a joint venture between the New York Mercantile Exchange and the Dubai government, would bring Nymex’s brand of open-outcry dealing to the region.

The DME said on Tuesday that it would launch a new Middle East sour crude oil futures contract in the fourth quarter and would install an electronic trade matching engine. It also named the exchange’s eight board members, who include Nymex president James Newsome and executive committee member Scott Hess.

When plans for the $50m exchange were first announced last year, it had been expected to open in early 2006 and to offer open outcry pits as well as an electronic platform.

DME chief executive Gary King will clarify the exchange’s plans next month. He said on Tuesday that the development of the exchange had proven to be “a complex process”.

Nymex, the biggest energy futures marketplace in the world, is hoping the DME will create a Middle Eastern hub for sour crude futures in a time zone overlapping Asian and European business hours.

A sour crude contract that it launched in Singapore in 2000 was cancelled after a year of thin trading, but officials believe an active marketplace for sour crude and fuel oil futures in Dubai could prove attractive to Asian over-the-counter traders.

The DME’s plans for electronic trading are significant because Nymex was built on open outcry trading and has limited electronic trading today, unlike its rival, the all-electronic IntercontinentalExchange. In September Nymex opened an oil futures trading floor in London but liquidity in its benchmark Brent futures contract has been limited so far.

DME officials are yet to announce the benchmark pricing for the sour crude contract, which is likely to be set against the value of either Dubai or Oman crude. Oman’s crude output is about 700,000 bpd, while Dubai’s production is about 100,000 bpd.

The exchange will be based in the Dubai International Financial Centre, a financial free zone monitored by its own Western-style regulatory authority. With its oil reserves dwindling, Dubai has spent several decades establishing itself as a physical commodities trading centre for the region. In November the government launched the Middle East’s first commodities derivatives bourse, the Dubai Gold and Commodities Exchange, designed to appeal to Arab and Indian metals traders and jewellers.

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