Market Assessment of a Planned Commodity Exchange in UAE

• Setting up a new commodities exchange is a long-drawn process; is capital intensive; and requires several critical elements such as rule books, trading system, clearing system, risk management system. Setting up the necessary infrastructure and the framework is a challenging task in initial stages
• The approval from SCA can be a bit tricky with DGCX already in place under DMCC. Requirements from SCA include minimum staff requirements, relevant regulations and decisions, and guidelines for financial institutions.
• Still SCA is perceived to take lot of time in some cases of listing of contracts; which in a way can be a challenge for operating an exchange
• Setting up a clearing house for commodity exchanges can be expensive and a complex process. Partnering with already setup clearing house (say with DGCX) might be complex
• New blockchain enabled trading instruments and new partnership platforms/marketplace such as Agriota can increase competition in the market for exchanges. Getting new products from exchanges to get licensed from regulators can be challenging/time taking in some cases

Table of Content:

Regulatory Assessment

• Understanding requirements for establishing commodity exchange in Dubai (primarily for pulses)
• Overview of key regulations pertaining to the establishment and operation of commodity exchange (such as Federal law no. 4)
• Outlining relevant regulations for brokers
• Outlining key forms and procedures mandated by the Securities and Commodities Authority (SCA)
• Assessment of compliance cost of establishing and operating commodity exchange
• Identifying key regulatory hurdles and challenges

Market Assessment

• Overview of Agri-production in UAE including production by commodities/pulses
• Analyzing the international trade volume of the UAE (including various types of pulses). Trade volume by pulses would be provided as per reporting from authoritative trade, statistical agencies such as WTO, national statistics, UNCTAD, others/
• Understanding the current landscape of commodity exchanges in UAE and in the broader MENA region
• An overview of stock exchanges in UAE and their volume
• Analyzing the current set-up of the Dubai Gold and Commodities Exchange (the only commodities exchange in the GCC region)
  • History and corporate set-up
  • Commodities/products offered
  • Volume of transactions by commodities
  • Fees and charges
  • Key rules and regulations
  • Partnerships and memberships
  • Key activities undertaken to promote the exchange
  • Identifying key features of two regional commodities exchanges which are dealing in Agri products such as Bursa Malaysia and Egyptian Commodities Exchange
  • Analyzing the volume of important regional and global commodities exchange
  • Literature review on how to build and promote a stock exchange including roadmap and key success factors

Financial Assessment

• Revenue Forecasts
• Set-up costs of commodity exchange including software and platform costs, hardware requirements, office space, furniture and fixture costs etc.
• Operational costs for commodity exchange including employee costs, server costs, marketing costs etc.
• Building a financial plan with revenue drivers, cost estimates, free cash flows and scenario analysis

Conclusion and Executive Summary

• A recommendation on the feasibility of setting up a commodity exchange
• A roadmap with key strategies for establishing the commodity exchange for the immediate period (3M-15M) with key 10-15 actionable steps / strategies in terms of strategic and tactical priorities
• A list of salient features of the commodity exchange
• Details of expected regulatory and other hurdles in the success of commodity exchange in Dubai
• Risk analysis and mitigation of key challenges envisaged