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Continuing with its product menu diversification, the Dubai Gold and Commodities Exchange (DGCX) today announced that it will launch three new unique contracts –India Gold Quanto Futures, Indian Rupee Quanto Futures and Mini Dubai Polypropylene Futures. In addition, the Exchange will upsize its existing Plastics Futures. The new contracts will be available for trading from Friday – June 5, 2015.
A Quanto is a kind of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some fixed rate. The release of the Quanto products will enable investors to gain exposure to the Indian gold and rupee market without being exposed to movements in the USD-INR exchange rate.
Gaurang Desai, Interim CEO of DGCX, commented: “We are excited to introduce a new set of contracts developed to meet the ever-growing needs of our member community. Quanto products are very unique not just in this market but worldwide. Our Indian Quanto contracts will offer great benefits to DGCX market participants, primarily by offering them immunity from exchange rate fluctuations apart from providing significant arbitrage opportunities. The new Quanto contracts expand the value proposition of our Indian product suite and take us to the next level in terms of hybrid gold capabilities.”
DGCX India Gold Quanto Futures contract will provide price discovery and gold trading opportunities for offshore traders to access Indian markets, one of the biggest gold consuming countries in the world. The new contract will trade before and after the closure of the Indian markets, which offers traders increased trading opportunities. The contract will be cash settled, denominated in US dollars, and sized at 1 index point.
The addition of the Indian Rupee Quanto contract will help DGCX further enhance its market share in the global Indian Rupee futures market. DGCX is already the largest offshore Indian Rupee futures market with the average daily value of trading exceeding $ 1.3 billion in 2015. The Indian Rupee Quanto Futures contract will enable traders to mimic Indian Rupee returns on the USD/INR contract in US Dollars, which helps amplify their potential returns.
“While DGCX’s current Indian Rupee product suite is essentially used by arbitrageurs and hedgers, the new DGCX INR Quanto contract is designed for traders who take a directional call on the Indian Rupee. The contract will supplement the Exchange’s existing Indian suite of products by providing traders with an outright quote on the USD/INR foreign exchange rate and inter- arbitrage opportunities,” Gaurang added.
The DGCX INR Quanto contract will be cash settled with a multiplier of 100 to the value of 1 US Dollar in Indian Rupee terms. The value of the Quanto contract is likely to stay between USD 6000 and USD 7000– making it twice the size of DGCX‘s mini Indian Rupee contract and five times smaller than the main Indian Rupee contract.
Amid the new additions is a Mini Dubai Polypropylene Futures contract, sized at 5 metric tonnes. The contract is cash settled to enable market participants to maximize its financial use.
The Exchange will also amend its existing Plastics Futures contract by upsizing it from 5 metric tonnes to 25 metric tonnes to align it with the size of a container load, making physical delivery more convenient for market players.
“The two Dubai Polypropylene contracts have been structured differently to cater to participants across the plastics supply chain as well as to the financial participants, so that all parties are able to effectively hedge their polymer risks,” Gaurang concluded.
The new contracts will be cleared by DGCX’s subsidiary Dubai Commodities Clearing Corporation (DCCC).
The rationale behind the move is rather obvious. Metals futures and Indian rupee futures have been among the main drivers of strong volumes at DGCX. Trading in these products has been steadily increasing at the exchange.
To view the official announcement by DGCX on the new products, click here.