The Dubai Gold and Commodities Exchange (DGCX) has launched three currency futures contracts – the Russian rouble, the South Korean won and the South African rand – as part of plans to expand its emerging markets offerings.
The launch of the contracts comes after the Russian currency slumped by more than 40 per cent against the US dollar this year due to weakening oil prices and western sanctions to penalise Russia over its military involvement in Ukraine.
Russia, the world’s second-largest oil exporter after Saudi Arabia, is suffering because of the near halving of oil prices to less than US$60 a barrel over the past six months, which was prompted by a supply glut of crude and weaker demand from Europe and Asia. The addition of these cash-settled contracts will increase the number of derivatives products within the currency portfolio to 14, making the DGCX the largest regulated trading platform for forex in the region, the exchange said .
The new emerging markets contracts will equip DGCX’s participants with tools to manage price risk and exposure to foreign currencies as well as provide new arbitrage opportunities, the exchange said.
“Emerging market currencies have been extremely volatile in the past few years due to various macroeconomic factors,” said Gaurang Desai, the interim chief executive.
“The launch of the Russian rouble, Korean won and South African rand futures represent an important facet of our comprehensive and long-term emerging market product strategy.
“The Middle East’s trading links with South Africa, Russia and South Korea have been growing rapidly over the past few years, and businesses transacting with these markets need to make sure that their currency price risk is managed effectively to ensure their long-term sustainability.”
The contracts will be cleared by the Dubai Commodities Clearing Corporation, a unit of DGCX.
“With the global crisis highlighting counterparty risk and lack of transparency associated with transacting FX [forex] trades bilaterally or over the counter, regulated exchanges and clearing houses are assuming even more importance in today’s FX markets,” the exchange said.
The Russian rouble contracts are a welcome addition to the exchange, given the decline in the Russian currency and strengthening trade ties between the UAE, the Arabian Gulf and Russia, said Pradeep Unni, head of trading at Dubai-based Richcomm Global Services, an international commodity services company.
Trade between Russia and the UAE has increased to US$2.5 billion last year, up from $1.48bn in 2012. The value of bilateral investments between the two countries stood at more than $18bn, with Abu Dhabi alone signing an agreement last year to create a $5bn investment fund, the biggest foreign investment in Russia’s infrastructure.
“DGCX launched the contract at the right time when the market wanted it. Currently, if you want to hedge the Russian rouble there are few banks or few brokers that offer non-deliverable forwards for the rouble. But it’s not accessible to everyone and to trade through banks is difficult,” said Mr Unni.
“Corporates are exposed to massive currency risk. The necessity of hedging the [Russian] currency has become much more important after the rouble crisis, and since the oil price has come down so much.”
DGCX’s trading volumes have been growing, with a 28 per cent increase in October from a year earlier period due to the addition of four new products and growth in the currency segment. October saw the year’s second highest monthly volume with trade touching 1,044,396 contracts.
In the same month the exchange also launched two new index products and two mini-Indian rupee contracts.
DGCX’s currency segment grew 31 per cent year on year in October, accounting for 93 per cent of total volume, with both the Indian rupee futures and mini-Indian rupee futures contracts performing well.
In addition to the new currency products, the exchange is planning to introduce a spot gold contract, the first of its kind in the Middle East.
The exchange’s other futures contracts include oil, metals, polypropylene and equities.
dalsaadi@thenational.ae
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