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‘It’s Just the Beginning’

February 2016

Gaurang Desai, CEO, Dubai Gold & Commodities Exchange (DGCX) tells Wealth Monitor the exchange will create a lot more opportunities for local brokerage and trading community in the coming days

Last year, DGCX recorded highest ever trading volumes of over 14.5 million contracts, up 23% on a y-o-y basis. How you see the growth in 2016 and what new products/ asset classes that you will be considering to launch?
For DGCX, 2015 was the best year in its decade old history in terms of the volume traded on the exchange, clocking the record-breaking trading volumes of over 14.5 million contracts. We however believe it is just the beginning. For 2016, DGCX has put in place plans to enhance the liquidity pool across its product range. More importantly, DGCX plans to launch a number of new products and introduce asset classes to meet growing regional demand for world-class products. Some of the key products planned to be launched are, namely, the Global Single Stock Futures and Soft commodities. Additionally, we are planning to expand our existing offerings in energy, metals and currencies verticals.

In December 2015, DGCX launched Spot Gold segment enabling investors to buy and sell physical 1kg bars on the exchange for the first time. How has been the response till now? What challenges you see in this contract attracting liquidity considering strong retail and institutional industry that already exists in Dubai for trading in Gold?
In Dubai and the wider region, physical trading in gold has so far been primarily driven by the bi-lateral Over-the-counter (OTC) model and has been plagued with a number of limitations that makes scaling up of operations difficult for a large number of participants. With the launch of Dubai Spot Gold contract (DGSG), DGCX provided a transparent, safe alternative and a unique mechanism that marries advantages of OTC deals with benefits of exchange-traded products for the first time in the region.
With the launch of DGSG, gold trading within Dubai and the region will be able to address some of the key limitations of the OTC model. DGSG contract aims to play a complementary role to current market structure by providing better price transparency, risk management and liquidity with other advantages such as ‘netting off’, not available under OTC system.
Since the launch of DGSG, the exchange has witnessed a surge of interest in the contract. In less than a month, DGSG contract has registered traded volume of 564 kg with a delivery of 44 kg of gold over multiple delivery cycles. With various advantages over the traditional OTC market for gold, DGSG contract is all set to make its mark in the New Year and we hope that DGSG contract soon becomes the Spot Gold product of choice for Dubai and the region.

What are the other spot commodities that you may add in this segment in future?
We continue to evaluate the feedback from the launch of Spot Gold and are studying the needs of market participants in the region in line with various suggestions received regarding the development needs of the market in general. We will share more details on new product developments as we progress.
DGCX has been predominantly a commodities and currencies exchange. But you are changing the business dynamics by launching the Single Stock Futures this month. What is the rationale behind such a move? Will this help DGCX to shore up participation from local brokerage houses who till now been are keeping a muted approach towards DGCX products?
Contrary to the perception, DGCX has sizeable presence amongst local broking and investing community and we remain committed to enhance the same by offering a number of relevant products to investors and traders in the region. The launch of Global Equity Futures is the first step in this direction and we will create a lot more opportunities for local brokerage and trading community in the coming days.

You are starting with stock futures on US and Indian stocks when you see adding local stocks in this product basket. Will you be partnering with any regional exchanges to launch futures on their stocks and indices?
DGCX strongly believes in creating value proposition for its customers and provide necessary platform to meet the needs of participants. Every year, a huge amount of investible funds is remitted outside the UAE and GCC markets in search of credible investment options and we see a great potential in this segment. We believe this will also help better investment climate in region and spur economic growth in these challenging times. We remain open to explore all ideas that creates value for our stakeholders and partners.

The launch comes at a time when regional and global equities markets are under tremendous pressure and moving only in one direction. What volumes you expect under such market conditions? Why investors will choose to trade on DGCX for these stocks when they can trade them on the native exchanges in US and India?
There are a number of reasons for investors and traders to select DGCX as the platform of choice for trading Global Stock Futures. Some of them are:
a) Single Stock Futures (SSF) allows traders and investors to participate in the price performance of the underlying equity on global markets.
b) SSF provides flexibility with chosen trading strategies and assists in portfolio management. Since SSF essentially mirrors the underlying stock prices, traders can use SSF for replicating their usual stock trading strategies with additional benefit of standardized futures instruments.
c) In the first phase, DGCX has selected five global stocks traded on US exchanges and ten stocks traded on Indian exchanges. Participants will be required to pay initial margins upfront when trading in SSFs. Investors can now use one exchange to participate in US and India exposure instead of remitting funds abroad.
d) Channelizing investments in one exchange also allows them to save on remittance costs, reduces hassles of managing cross-border funds movement and optimizes the efficiency of funds available – all of these translate into better returns on capital deployed than trading in different markets globally.

We see numerous companies in this region offering spot and forward trading in currencies and commodities. What challenges DGCX faces from such platforms? How you plan to increase DGCX penetration within local traders who are very much attuned to such OTC platforms?
Investor education and awareness has been one of the key priority areas for DGCX. We work very closely with our broker members, industry associations and regulatory agencies to organize seminars, workshops and events for traders and investor community throughout the year. It is however very important for an average investor to understand two things: a) the risks of trading on unregulated platforms with excessive leverage offered; and b) critically evaluate promises of abnormal returns on investment, and compare them with advantages of trading on regulated, transparent exchange like DGCX through its extensive broker member network.

Tadawul is considering going for an IPO. Any such plans by DGCX?
We continue to watch developments in our industry and will share more details once we come up with any such plans.

It has been a remarkable journey in the last 10 years. Where do you see DGCX in its next 10th anniversary?
It has been an incredibly exciting 10 years for DGCX. We have come a long way from launching just one gold product to becoming an exchange listing more than 30 products spanning across 5 asset classes.
In the last 10 years, we didn’t just create a truly global exchange but have also built a world-class clearing corporation in the form of Dubai Commodities Clearing Corporation to offer unmatched range of products and services to meet the needs of the market. We hope to remain an “Exchange of Choice in GCC” and to further strengthen the value proposition of Dubai as an incredible investment destination for companies within the commodities and financial services industries.

Gaurang Desai has been a founding team member of DGCX since its inception in 2005. A derivatives market specialist with close to two decades of experience in handling variety of senior roles.
Prior to this engagement, Gaurang was involved in market structure development initiatives in areas such as Commodities, Equities, Securities depository and B2B online marketplaces with the National Stock Exchange of India, National Commodity & Derivatives Exchange and Reliance Group.
Gaurang brings unparalleled experience in the areas of market design, risk management, clearing & settlement and operational competence for a demutualized electronic exchange.

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