CME Plans Expansion of Weather-Linked Derivatives |
10/28/2009
Wall Street Journal
By Jacob Bunge
28 October 2009
14:00
The Wall Street Journal Online

CHICAGO -- CME Group Inc. plans to welcome the coming winter with new snowfall contracts set to launch in early December, expanding the exchange operator's stable of weather-linked derivatives. CME, the world's largest futures platform by volume, also maintains markets linked to hurricanes, temperature and frost, aimed at helping companies manage risks related to weather conditions. Beginning Dec. 7, CME will list monthly and seasonal futures and options tied to snowfall at New York's LaGuardia, Chicago's O'Hare, Minneapolis/St. Paul, and Detroit's Metro airports. The new products follow the similar contracts for Boston's Logan Airport and New York's Central Park, which launched in 2006 but have not traded. But CME said it has found resurgent interest in the products from potential customers looking to guard against fickle weather conditions. "A snow removal company, for example, can better manage their loss in revenue in the event of a less-than-expected amount of snowfall during the snow-removal season," said Barry Goldblatt, Managing Director of CME Group Commodity, Energy and Metals Products, in a statement. CME has been committed to developing the nascent weather derivatives markets for about a decade, introducing its first products based on temperature indexes in 1999. The potential uses for such products are wide-ranging, letting a power company hedge against a hot summer that keeps people indoors with their air conditioners on, or a hurricane that drenches a major city and slows manufacturing production. Still, with average annual volume of about 900,000 contracts, CME's weather futures represent only a tiny fraction of overall trade, dwarfed by interest rate, equity index and energy markets. Howard Packowitz contributed to this article.
Write to Jacob Bunge at jacob.bunge@dowjones.com