Nordix prices will be listed on the Chicago-based Merchants’ Exchange, and all transactions will be cleared through the Board of Trade Clearing Corporation.
The WBOT, which obtained US Commodity Futures Trading Commission approval in May, has already signed up 13 charter members, including some of the biggest names in the weather risk industry, such as Connecticut-based weather risk firm Element Re, ABN Amro and brokers GFI. The other members are Bank One, Credit Lyonnais, Man Financial, Prudential, Royal Bank of Canada, Toronto Dominion, brokers TFS, New York-based energy company Hess, Chicago-based energy brokers Castlebridge Partners and US commodities brokerage FC Stone.
Nordix will be the first weather index to be marked-to-market on a daily basis, Parker said, and this could encourage speculators to dabble in the weather risk market. "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.”
Parker also expects three or four lead market-makers to join the WBOT within the next few weeks. These firms will retain an equity stake in the exchange, Parker added.
Although the WBOT has succeeded in signing up an impressive array of member firms, exchange-traded weather derivatives have been slow to take off. The London International Financial Futures and Options Exchange has been struggling with its exchange-traded weather futures contracts, which are settled against the monthly and winter season indexes based on daily average temperatures in London, Paris and Berlin.
Although US energy firm Aquila traded one contract of five lots on the London indexes, Paris and Berlin have still not been traded – more than half a year since Liffe launched the contracts.
The week on Risk.net, July 7-13, 2018Receive this by email