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Dubai: The Dubai Mercantile Exchange (DME), which is planning to launch two new cash settled contracts on Oman sour crude and Brent, is studying the possibility of launching a new cash settled futures contract on West Texas Intermediate (WTI), DME chief executive Gary King told Gulf News.
WTI is the US domestic crude oil benchmark and the main New York Mercantile Exchange's oil futures contracts.
Apart from a futures cash contract on WTI, the DME is also cosidering other commodites futures contracts for eventual introduction on DME.
"We have always said that we are not just an energy exchange, several other commodities are under study," King said without specifying the underlying commodities.
DME will shortly launch two financially settled contracts for Brent and Oman crude, subject to regulatory approvals from Dubai Financial Services Authority.
"The introduction of Brent contract will create arbitrage opportunities between the sour and sweet crude.
"Very often traders like to make use of these. And also, some times the risk managers need to transfer their price risk exposure from Brent to Oman cure, from Atlantic basin to Pacific basin. These two contracts will be ideal tools for such operations," King said.
Asked about the possibility of adding a cash settled contract on WTI that would complete the full circle of arbitrage opportunities, King said DME is considering such an option and the introduction of such a contract will depend on market demand.
The DME's new Brent crude oil financial contract and Oman crude oil financial contract will be traded electronically on DME Direct, the exchange's electronic trading system.
"These two new contracts were designed after extensive consultation with our global customers. It is the demand from traders that has driven us to launch these financially settled contracts on two top crude oil benchmarks on one common platform," he said.
The DME's new Brent contract will be cash-settled against ICE's Brent crude futures contract, while its Oman contract will be cash-settled against the DME's benchmark Oman crude oil futures contract.
"There are a large number of players in the financial industry who do not trade physical crude. They prefer financially settled products. We are primarily targeting risk managers, institutional investors and financial institutions," King said.
Delisting
DME has two financinally settled contracts, Oman financial spread contract (QN) and WTI-Oman financial spread contract (QW). Upon launch of the new contracts, the exchange plans to de-list these.
"After talking to the industry we realised that these need to be re-engineered to suit the requirements of the industry. They were doing well in the beginning, but what we found is that they need to fine-tuned to the requirements of the market," King said.
During a span of eight months DME achieved regulatory approvals in 24 international jurisdictions across the world and has 70 members trading on the exchange.
The physical trade on the exchange is dominated by Asia-Pacific region with Japan, South Korea, Thailand and Taiwan accounting for the bulk of the delivery.
The new contracts are expected to add the ability trade the spreads which will complement the physical trade and substantially improve the trading volumes on the bourse.
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