The Dubai Mercantile Exchange (DME) will have to implement stricter limits on oil traders if it wants to offer its own version of a world benchmark oil contract to American clients, a US regulatory body said late Monday. The Commodity Futures Trading Commission (CFTC) said that the DME would need to release information on daily trading information, identify large trader positions and adopt position limits equivalent to those found on US exchanges in order to offer a cash-settled version of the West Texas Intermediate (WTI) future oil contract.
The move follows similar action that the CFTC took against an exchange in London last month, as part of a campaign to close "loopholes" that allow traders based in the US to avoid CFTC regulations by trading the WTI on overseas exchanges. The DME said it had been prepared for the move since early last month and would comply with the stricter requirements. "DME would implement comparable position limits to those that Nymex [the New York Mercantile Exchange] currently has in place on its light sweet WTI crude oil futures contract," the exchange said.
"The DME supports the recent moves by the CFTC and US Congress to address international transparency in the international electronic energy and commodity markets." On June 2, the exchange launched a cash-settled version of the Brent contract, as well as one for its Oman Crude Oil Futures Contract. Both contracts are traded in Dubai, but cleared by Nymex. An oil futures contract is an agreement in which two parties agree to a price for a set quantity of oil - usually 1,000 barrels - for delivery at a designated expiry date in the future.
Nymex rules limit each investor to 3,000 contracts in the last three days before expiry. The exchange also allows regulators to demand additional information from traders who hold more than 20,000 contracts at any time in a given month. Every week, it publishes a report breaking down positions between commercial, which includes oil companies and other risk-hedgers, and non-commercial, including banks and other speculators.
The new requirements on the DME come as part of a series of actions taken by the US government against speculators on world oil markets, who Opec and many others blame for pushing up crude prices to record levels. Congressional committees have grilled hedge fund managers and other equity investors who hold large oil positions, and commodities exchanges have been pressured to impose limits to slow the flow of money into the markets.
Some economists have recommended that exchanges increase margin requirements, or the amount investors need to put down when purchasing contracts. Higher margin requirements should discourage speculative investment from equity traders and others who were looking for a short-term turnover or a hedge against inflation, they said. Last week, Nymex raised its margin requirements for clearing members for some contracts from US$8,750 (Dh32,139) to $9,250, while the DME raised margin requirements for clearing members by $1,000 to $12,500.