JP Morgan acquires stake in Dubai Mercantile Exchange

The Dubai Mercantile Exchange (DME) announced today that JP Morgan has taken an equity stake in the exchange.

The DME is the lasted investment of JP morgan, which has been salvaging its counterparts in the US.

JP Morgan has taken an equity stake in the Dubai Mercantile Exchange, the DME announced yesterday.
The bank joins previous investors Goldman Sachs, Morgan Stanley, Vitol, Concord Energy, Casa Energy Trading and a division of Shell, in the collective purchase of a 20 per cent equity stake offered by the DME in August. The terms of the equity sale were not disclosed.
"Continued interest from the ranks of the most highly respected global financial institutions and energy trading firms to take an equity stake in the business underscores the success of the DME to date," said Ahmad Sharaf, the chairman of the DME. "Furthermore, it affirms the strong future prospects for the exchange, the broader Middle East, and Dubai in particular, which has emerged as an important financial hub and energy trading centre."
As banks in the United States have struggled to stay afloat amid the current financial crisis, JP Morgan Chase has been salvaging its fallen counterparts, acquiring both Bear Stearns and Washington Mutual over the past few months.
To further shore up confidence and strengthen the bank, the US treasury will be spending US$25 billion for a stake in the bank, according to Bloomberg.
"JP Morgan is fully committed to providing the exchange with our insight and resources as it continues to evolve and grow," said Blythe Masters, the head of global commodities at JP Morgan. "This partnership underscores our commitment to the Middle East region and the growth of our commodities business."
The DME is host to the first Middle East sour-crude contract. The contract, backed by oil producers, is geared towards becoming a measure for world crude prices, but to date it has been hampered with relatively low levels of liquidity. Low levels of liquidity coupled with the dominance of a few major traders have caused the exchange to be volatile. In July of this year, the Oman crude oil contract – which is of lower quality and nearly always priced at a discount – closed higher than the West Texas Intermediate contract.
"It's happening in all exchanges. There is a decline in open interest since there is deleveraging going on in the exchanges as a whole," said Tom Leaver, the chief executive of the DME. "We are still in our infancy. We have experienced some of that [deleveraging] as well, how long it will last we don't know. It is to be expected, to an extent, with all the bank bailouts going on."
The DME Oman Contract has seen increasing trade levels, which reached 24,980 in August, and are expected to continue to rise in the coming months.
"The goal for us is to get end users as well as oil companies to migrate to use the DME as their price reference so that they get better price transparency and fair value for their oil," Mr Leaver added.
The DME is a joint venture by Tatweer, the New York Mercantile Exchange and the Oman Investment Fund. Following today's announcement, the three owners each have 25 per cent stakes in the DME, with the remaining five per cent held by exchange members.
In the first year of trading, more than 440 million barrels of crude oil were traded on the exchange, a small number in comparison to New York Mercantile Exchange's 121 billion in 2007. The figure, however, continues to grow following strong interest, demand and growing participation on the DME.
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