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Aug 17, 2012 ||
Justin Bozzino ||
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Our partners at the Dubai Mercantile Exchange, who celebrated their 5th anniversary this week.
This milestone bears some reflection. There’s very little data on the longevity of new futures contracts, but it’s fair to say that not many make it to five years with a consistently rising volume trend. Reaching [5,000] lots average daily volume this year, the DME has continued to attract participants from across the energy spectrum. That fact, in and of itself, is something to celebrate.
It’s also worth recognizing the reasons for its success. Set up to provide a futures benchmark for the East of Suez crude oil markets, the DME brings much needed price transparency to the region’s markets. As the graphic above neatly illustrates, the success of the benchmark rests on the regulated, secure environment in which price discovery takes place, and the subsequent firm connection to the underlying physical markets. We’ve mentioned before how important it is that a benchmark has a strong connection with the underlying fundamentals, and this appears to be borne out in the increased adoption of the DME Oman futures contract. Likewise, the DME shows the need for local and global partners to work closely together when building new markets – a core principle behind all our alliances.
What does the future hold? Our increased investment in the DME earlier this year reflects the optimism that we have in the exchange and its flagship contract. In an environment of high and volatile prices, risk management in Asia will become ever more important and a regionally relevant, regulated and transparent benchmark will be well received. With a close collaboration between CME and DME, the arrival of CME Direct to increase ease of access to the DME Oman contract, and the continued growth of our energy products, the outlook looks very bright.
Justin Bozzino is executive director of energy products at CME Group.
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