Dubai Holding and the New York Mercantile Exchange (NYMEX) announced the formation of the Dubai Mercantile Exchange Ltd (DME), a joint-venture to develop the Middle East 's first energy futures exchange. The DME will be developed upon the direct instruction of His Highness General Sheikh Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai.
It is expected that the DME will initially trade sour crude and fuel oil on a transparent platform for price discovery. The DME will be based in the Dubai International Financial Centre, a financial free zone designed to promote financial services within the UAE. In addition, the DME will be regulated by the Dubai Financial Services Authority, a regulatory body established within the DIFC and charged with the creation of a world-class regulatory regime which promotes integrity, transparency and efficiency. The DME is expected to open for trading in early 2006.
Dubai Holding and NYMEX, the world's largest energy futures exchange, will each contribute capital and services towards establishing the DME, which will house both open outcry and electronic trading platforms. In addition, NYMEX will contribute to the 50-50 joint venture software and systems to run the trading operations of the exchange including trade entry and risk management systems. The DME will leverage NYMEX's proven expertise in compliance, marketing, research and IT to develop the exchange's platform. Trades executed on the DME will be cleared through the NYMEX clearinghouse in New York.
"This is an important first step towards providing an energy exchange for the greater Middle East region. Our priority now is to build on this agreement and develop a platform for managing risk which reflects the increased financial sophistication of the region's capital markets," Mohammed Al Gergawi, CEO of Dubai Holding, said.
DME is part of a larger government initiative to make Dubai a premier financial and trading hub. For decades, Dubai has played a vital role in trading commodities. By leveraging Dubai 's existing infrastructure, DME can serve the greater need of the Middle East energy markets," Gergawi added.
Commenting on the New York Mercantile Exchange's first overseas joint-venture, Mitchell Steinhause, chairman of NYMEX said, "We are committed to the long-term success of the DME and will leverage our expertise in the development of global energy markets to create a state-of-the-art world class commodity exchange in the Middle East."
Dubai presents a unique opportunity for the global energy futures industry to fill a time zone gap in trading between Europe and Asia. "DME will fill that gap by establishing an exchange with products that address the growing needs of the regional market", he said.
"The contracts traded on DME will be tailored to the needs of the marketplace and may include physical delivery alternatives that represent the physical trade flows," said James E. Newsome, President of NYMEX.
DME will strengthen Dubai 's ties with the international finance and commodity trading communities, attract untapped foreign-direct-investment, and create a new industry for many young, talented UAE nationals. Dubai also envisions the establishment of training facilities to empower the region's youth in order to operate successfully in the modern derivatives environment.
The New York Mercantile Exchange, Inc., is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, standing for market integrity and price transparency throughout its 132-year history. NYMEX light, sweet crude oil futures contract is the world's most liquid forum for crude oil trading, as well as the world's largest-volume futures contract trading on a physical commodity. Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark.