The Resurgence of the DGCX – Harnessing Trading Opportunities in the Middle East
Lately, we’ve noticed a marked resurgence of interest in trading in Dubai, particularly on the Dubai Gold and Commodities Exchange (DGCX). We originally saw an influx of firms to DGCX about five years ago, but with the high cost of infrastructure in the region, extracting alpha was difficult, volume and liquidity remained limited, and a number of firms subsequently dropped out after a couple of years. So, what’s changed? We look at the reasons for the resurgence and the key trading opportunities in the Middle East.
Growth of the Dubai Gold and Commodities Exchange (DGCX)
Following the appointment of industry veteran Les Male as CEO in 2018, the Dubai Gold and Commodities Exchange has worked hard to breathe new life into its market by restructuring for growth and listing new, innovative products, such as the sharia-compliant gold contract, for example.
The exchange is now seeing growth in a number of its metals, commodities and currency contracts (it’s now the world’s largest liquidity pool for Indian rupee trading outside of India, for example). As a result, trading firms are now coming back to DGCX.
Trading opportunities in the Middle East
A significant advantage of Dubai is its location, not only serving as a connectivity point between London and India – and on to Singapore – but also benefiting from a time zone that allows it to remain open during Asian, European and US trading hours.
Traditionally, the bulk of the DGCX’s trading community has consisted of Indian trading firms, trading gold and dollar/rupee. But with the introduction of the new contracts, the structural changes that have been implemented, and the low latency connectivity that providers like BSO offer between Dubai and other trading centres, particularly London and Mumbai, the Dubai Gold and Commodities Exchange has become much more attractive to international players, including proprietary HFT firms and market makers, many of whom are based in Europe and US.
The Indian connection is an important factor. Many global trading firms are focused on India right now because of upcoming changes in regulation that will open up the market. The recently launched India International Exchange (INX) in GIFT City, Gujarat’s free trade zone, now allows international firms to trade US-dollar denominated contracts in the region. And the recent formalising of an agreement between Singapore Exchange and India’s National Stock Exchange (NSE) to allow trading of Nifty products in GIFT City will no doubt open up additional trading opportunities via Dubai for international firms.
What about equities trading in the Middle East?
Outside of DGCX and the exchange-traded derivatives market, opportunities are now also opening up in the region’s equities markets. Listing rules have recently changed in UAE around company ownership and structure, meaning that there is no longer a requirement for foreign firms to have 51 per cent UAE ownership in order to IPO. This bodes well for future IPO activity and could lead to significant growth in equities trading.
Elsewhere in the region, following the successful listing of Saudi Aramco on the Saudi Stock Exchange in December 2019, the exchange has seen a steady stream of listings in 2020, which is set to continue further in 2021. And the launch of the Nasdaq Dubai Growth Market in October last year is likely to create additional trading opportunities for international players in the region’s equities markets.
How can BSO help with the DGCX?
BSO has a long history of trading in Dubai and the Middle East. For almost ten years, we’ve been providing infrastructure to bring foreign firms into the UAE, and to enable regional firms to access global markets. In 2017, we introduced DGCX Market Connect, which allows firms to connect directly into the Dubai Gold and Commodities Exchange from data centres in London and Singapore. This gives customers the unique advantage of being able to connect remotely from London and/or Singapore for both market data and order entry, without having to colocate in Dubai next to the exchange’s matching engine, which is an expensive proposition.
DGCX Market Connect provides a low-cost mechanism for firms to enter the market from existing points of presence where they already have trading infrastructure, at ultra-low latency, without having to buy a full circuit. Today, BSO offers the lowest reliable latency currently available between London and Dubai, and we’re constantly improving our technology to ensure our latencies are among the lowest available between Dubai and other market centres, including Chicago, Mumbai and Singapore.
Conclusion: Harness trading opportunities in Dubai and the Middle East
With the combination of the new initiatives underway at DGCX, GIFT City opening up in India, the region’s equities markets seeing increased IPO activity, plus the signing of the recent Abraham accords, which could see a growth in trading between Dubai and Israel, things look extremely positive for trading in the Middle East. Forward-looking firms should consider how they can best capitalise on these potential trading opportunities, by working with an infrastructure partner that not only understands the region but can also provide stable, cost-efficient, low latency, market-leading connectivity between Dubai and other market centres around the world.
Get in touch to find out more about the Dubai Gold and Commodities Exchange, how to harness trading opportunities in the Middle East and the services that BSO offers.