Will the magic of big names stun the DME?
The Dubai Mercantile Exchange has sold 20 percent equity to bring in Shell and Morgan Stanley. But what can they do?
August 12, 2008 10:59 by kippreport
The Dubai Mercantile Exchange (DME) has just announced that it sold an equity stake of 20 per cent to a group of six financial investors and energy traders including Goldman Sachs, Morgan Stanley, and a unit of Shell. The exchange hopes that the big names (which also includes energy traders Vitol, Concord Energy and Casa Energy Trading), will attract more interest and pull in more traders. But will that happen?
DME is a joint venture between Tatweer, a member of Dubai Holding, the New York Mercantile Exchange (NYME), and the Oman Investment Fund, and is an international energy futures and commodities exchange in Dubai. Started last year, the exchange currently has just 12 members from the region.
DME has been struggling to channel liquidity into its Oman futures deal, and is hoping to launch two new contracts for Brent and Oman crude oil very soon.
Now, to companies already listed on the exchange, the new deal would make no immediate difference, unless the new owners bring in new technologies. But will they do that? And since DME is already a part of the NYME, one would expect the latest from New York to reach the Emirate. So, what changes can actually come about?
Analysts say that the big financial investors could provide a strong competitive edge for DME to woo traders; after all the regional market has other options like the Dubai Multi Commodities Center (its direct competitor) and the Dubai Gold and Commodities. But one wonders why do local players have to depend on global bodies to compete with each other? (Nasdaq took a stake in DIFC last year, and NYSE Euronext has a stake in the Doha Securities Market). Doesn’t the region have adequate expertise? And wouldn’t Dubai benefit better from a single exchange which could boast more liquidity?
In an interview with Trends magazine last year, Ahmed bin Sulayem, the executive chairman of Dubai Multi Commodities Center said, “There are many reasons to keep the two exchanges running. First of all, at this stage, we are not duplicating contracts – which could happen in the long run. The second reason is that by keeping in two groups, Sheikh Mohammed has the comfort that both of them are running really fast because competitiveness brings quality.”
While the competitiveness could bring quality, what the exchanges seem to be hoping for right now, is more quantity.