Dubai bourse seeks new role for China banks

Commodities exchange looks to boost trade in oil futures by tapping lenders on the mainland

PUBLISHED : Monday, 22 April, 2013, 12:00am
UPDATED : Monday, 22 April, 2013, 2:50am

Dubai Mercantile Exchange (DME) is hoping to increase the participation of mainland and Asian lenders in financing trade in its Oman oil futures contract.

The commodity exchange, which offers investors the opportunity to trade its flagship DME Oman crude oil futures contract (OQD), saw an opportunity for banks in the region to provide financing for the trades after Western lenders were hit hard by the financial crisis, said DME chief executive Christopher Fix.

OQD, launched in June 2007, is used as one of the crude oil pricing benchmarks in Asia.

Fix, who took over at DME in August last year, said the mainland market offered dynamic growth opportunities for the exchange, as many of its crude oil physical delivery contracts went to China.

Total oil contracts traded on the exchange amounted to 6.2 million barrels per day as at the end of March, he added.

"None of the US$1 billion to US$1.5 billion worth of oil financed under the DME is financed by Chinese banks, although the mainland takes 40 per cent of physical delivery," Fix said.

The exchange, in which Chicago Mercantile Exchange owns a 50 per cent stake, was now seeking a way for Chinese banks to finance their customers via the DME, he said.

Fix, who last week paid his second visit to Beijing since his appointment, met some of the exchange's Chinese clients including state-owned enterprises allowed to trade futures overseas. He also aimed to meet financial players, including banks and hedge funds, which have close links to the mainland.

Beijing was home to many of the world's largest banks that do business with Chinese customers," he said, and the exchange had held discussions with lenders on what financial products would fit their businesses.

Demand for oil on the mainland, where GDP grew by 7.7 per cent in the first quarter, would continue to grow strongly, said Fix. According to the General Administration of Customs, China's net oil imports amounted to 6.12 million barrels per day last December, surpassing the 5.98 million bpd imported by the United States and making it the world's largest net oil importer.

DME was also in discussions with the Chinese regulators to get approval for OQD to become one of its outbound futures contracts amid the rising importance of the mainland market, Fix said.

The Shanghai Futures Exchange has plans to launch its first oil futures contract by the end of this year. The contract is likely to be opened for trade by foreign investors.

Fix said he was bullish about the launch of the Shanghai contract, saying it would not cause competition but rather create good arbitrage opportunities.