DGCX sets new monthly volume record

Dubai Gold & Commodities Exchange (DGCX) has set a new monthly volume record for 2009 with 158,074 contracts in May which reflects a year-on-year increase of 77 per cent.

With an underlying value of $7.5 billion, its total volumes in May were the highest monthly volume achieved this year mainly driven by renewed interest in DGCX Gold, WTI and Indian Rupee/Dollar futures contracts.

The volume exceeded the previous high of 101,215 contracts achieved in March 2009, said a DGCX official, adding the year-on-year growth in average daily volume was 85 per cent.

Gold futures volume rose to 67,752 contracts in May, up 31 per cent on the same period last year, while Indian Rupee and WTI crude oil futures achieved record monthly volumes of 10,649 and 55,253 contracts in May.

The higher volume in May is evidence of a growing number of local participants favouring the commodity and currency sectors as alternative asset classes and the transparent, secure trading environment of DGCX, said Malcolm Wall Morris, chief executive officer, DGCX.

'So far, the year has witnessed new volume records for specific products, such as Euro/Dollar and WTI crude oil. But May saw total volume hitting a new high for the year, encouraged by sustained activity across all product segments,' he noted.

The trend reaffirms strong interest in commodity and currency derivatives in the region,” he added.

While precious metals gained momentum, currencies have also contributed significantly to overall growth, with year-to-date volumes rising 46 per cent.

Overall, May volume was 61 per cent higher compared with April, spurred by a 46 per cent increase in Gold, 47 per cent in GBP/Dollar and 179 per cent in Indian Rupee/Dollar futures

DGCX

Dubai has historically been an international hub for the physical trade of not only gold, but also many other commodities and so the establishment of the Dubai Gold & Commodities Exchange (DGCX) was the next logical step for the region and the local economy. DGCX commenced trading in November 2005 as the regions first commodity derivatives exchange and has become today, the leading derivatives exchange in the Middle East, providing the right products, at the right price and the right time.

DGCX is an initiative of the Dubai Multi Commodities Centre (DMCC), Financial Technologies (India) Limited and the Multi Commodity Exchange of India Limited (MCX). The Management team of DGCX comprises senior personnel from the commodities, securities and financial services industries bringing a wealth of experience and expertise to ensure the success of DGCX.

DGCX offers the unique advantage of being located in the Middle East, one of the world’s largest areas of financial liquidity.

Dubai is one of the world’s fastest growing business centres, with over 400 international institutions from around the globe and US $160 billion high net worth investment business. It is also the world’s fifth largest re-exporter and grew on average by over 13.4% per year between 2000 and 2005.

Dubai offers a strong, stable government and a balanced, world class regulatory framework. With a zero tax environment and free trade zones offering 100% ownership, it has become the entry point for much of the Middle East’s liquidity and trade activity.

Benefits of Trading on DGCX

Our range of futures contracts offers participants of the physical commodities markets, such as producers, manufacturers and end users, with a sophisticated means of hedging their price risk exposure. Such price risk management has previously been unavailable to producers in the Middle East. In addition, DGCX offers trading opportunities to financial communities and investment houses in both the Middle East and around the globe who wish to access the growing asset class of commodity and currency derivatives.

• Guaranteed settlement and reduced counterparty risk provided by Dubai Commodities Clearing Corporation (DCCC), a subsidiary 100% owned by DGCX

• The advantage of transacting and clearing business within the UAE and thus the local taxation and regulatory regimes

• A simple fee structure - one fee for all participants. All participants also pay the same margin, whether commercial or non-commercial entities

• An opening to both regional and international liquidity pools

• Robust risk management and surveillance systems

• Uninterrupted trading hours from 8:30am – 11:30pm (GMT +4)

• Regulated by the Emirates Securities & Commodities Authority (ESCA)

Technology

Technology forms the backbone of data-rich, transaction-driven online, real-time networked systems. DGCX holds the strategic advantage of having Financial Technologies (India) Ltd. [FTIL] as its technology partner for delivering technologically advanced solutions to market participants. FTIL's provides end-to-end Exchange solutions for Trading / Surveillance / Clearing and Settlement operations, giving a cutting-edge to the DGCX operations.

The state-of-the-art, new generation trading platform of DGCX is extremely user-friendly and adaptable, enabling the trading of futures and options products for a wide range of commodities from basic commodities such as gold, silver, fuel oil, pulses and steel to more exotic products such as freight rates. The Exchange Trading System, which maintains the Central Order Book, is located in Dubai. Orders placed by the members through their Trader Work Station (TWS) from across the globe are routed to the central order book where the orders are matched based on a price time priority algorithm. Additionally, members can also use their existing front-end application through Exchange FIX Gateway which supports FIX 4.2 protocol standard.
The trading platform also incorporates a highly sophisticated and automated Risk Management System which reduces human intervention to a minimum and creates alerts based on the pre-defined parameters for risk management. This provides comfort to the market participants at all times regarding the financial integrity and transparency of the marketplace.
The hardware implemented by DGCX provides a fault tolerant environment with multiple levels of backup to ensure a very high degree of availability. The hardware incorporates best fail over options and redundancy, for all the components at exchange level and network level.
DGCX is an international exchange and members can connect to its trading platform from anywhere in the world through various modes of connectivity ranging from terrestrial links and VPNs to public networks. This guarantees ease of access for trading, clearing, settlement, payments and obtaining real time information. Customers and members can opt for their preferred medium of connectivity so that every market participant minimizes costs and maximizes benefits.

Trading System Architecture

The overall order routing and matching system of the exchange is depicted in diagram given below

Orders, as and when they are received, are first time stamped and then immediately processed for a potential match. If a match is not found, the orders are stored in different 'books'. Orders are stored in price-time priority in various books in the following sequence:

• Best Price
• Within Price, by time priority

Order Matching Rules

The best buy order is matched with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with the highest price and the best sell order is the one with lowest price. This is because the system views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. So, of all buy orders available, a seller would obviously like to sell at the highest possible buy price that is offered. Hence, the best buy order is the order with highest price and vice-versa.

Members can pro-actively enter orders into the system which will be displayed in the system until the full quantity is matched by one or more of counter-orders and result into trade(s). Alternatively members may be reactive and put in orders that match with existing orders in the system. Orders lying unmatched in the system are 'passive' orders and orders matching the existing orders are called 'active' orders. Orders are always matched at the passive order price. This ensures that the earlier orders get priority over the orders that come in later.

Clearing Member Commitment

A Clearing Member (CM) is required to deposit and maintain a minimum

level of Commitment as prescribed by DCCC.

Commitment prescribed by DCCC (in US Dollars)
Membership Category	Commitment Prescribed
Broker Clearing Member	150,000
Special Clearing Member	150,000
Trade Clearing Member	75,000

Commitment may be in the form of cash and non-cash instruments as under:

• Minimum 40% of the Commitment shall be maintained in cash at all times
• Part of the Commitment in form of non cash instruments shall not exceed 60% at any time

Non-cash part of Commitment may be in the form:

• Term Deposits (TD) issued by approved banks
• Letter of Guarantee in favour of DCCC from approved banks in the specified format

Any failure on the part of a CM to meet with the Commitment requirements at any point of time,

shall be treated as a violation of the Clearing Rules of DCCC.

Risk Management Framework based on SPAN Methodology

Initial margin (IM) - The amount that must be deposited by a customer with the

DGCX Member at the time of (or before) entering into a contract is called the initial

margin. This margin is meant to cover the potential loss in one day. The margin is a

mandatory requirement for parties who are entering into the contract. Upon proper

fulfillment of all obligations associated with a trader's contractual position, the initial

margin is returned to the trader.

When the clearing commitment deposited with the DCCC falls below a certain level,

the clearing member is required to deposit additional funds to replenish the margin

so as to bring it back to the initial level. The demand made for depositing of such

funds to meet the shortfall in margins is known as margin call. Such margin call

may be made by the DCCC on a clearing member or by a clearing member on his client.

Mark-to-Market (MTM) / Variation Margin (VM) - At the end of each trading

day, the open positions are adjusted to reflect the client's gain or loss. This is known

as marking to market the account of each member.

Special Margin - The Exchange, in case of additional volatility, may decide to impose

special margin as deemed fit from time to time. The special margin could even be

imposed on all open positions or any particular contract or commodity. Special margin

imposed would be over an above other margins applicable (e.g. Initial Margins,

MTM Margin etc.).

Daily Marking to Market

Exchange calculates MTM profits or losses to arrive at the net amount payable or receivable
as daily Variation Margin at the end of each trading day. Such MTM losses are payable to
DCCC on next working day (T+1 basis) before the market opens for trading.

Non-fulfillment of either the whole or part of the margin obligations will be treated as a
violation of the Exchange By-Laws and Clearing Rules. In addition DCCC may at its discretion
and without any further notice to the clearing member initiate other disciplinary action,
inter-alia including, withdrawal of trading facilities and / or clearing facility, close out of
outstanding positions, imposing penalties, collecting appropriate deposits, invoking letter
of guarantee / term deposit etc.