Zipspeed launches daily mark-to-market weather index

The Normal-Departure Index (Nordix) will be the first weather index to be marked-to-market on a daily basis, according to Daniel Parker, managing director of Zipspeed: “There is an acute need for a product that is settled on a daily basis to encourage financial institutions to trade in a market that is still too geared to the energy sector.”

Zipspeed is looking to launch Nordix on a regulated exchange in the US, but has not ruled out working with a non-US exchange. The company has spoken to the Kansas Board of Trade and the Chicago Mercantile Exchange, as well as brokers Cantor Fitzgerald and Brokertec, but has made no commitment to any of these companies, Parker added. The exchange launch will not happen for several months.

The index will be geared to trading temperature and precipitation measures, with sunlight and windspeed measures to be added later. The US government's National Climate Data Center will supply weather data.

Parker believes existing weather derivative contracts are too customised to form the basis of a liquid market. He said heating/cooling degree-day derivatives – the most commonly traded weather contracts - are geared towards the energy sector, to the exclusion of other industries. He believes Nordix, by incorporating a range of weather measures into a single index, should overcome this restriction and help the weather risk market to become more generic.

“Our belief is that hedge funds, for example, will be eager to use this index because it provides a liquid market unconnected to other risks they may have, which makes it an ideal hedge,” he added.