CME To Add Six New Cities, Cooling Degree Day Indexes To Weather Futures Contract Listings Beginning Jan. 30

The Chicago Mercantile Exchange (CME) will add six additional cities and Cooling Degree Day (CDD) indexes to its weather futures contract listings beginning Jan. 30, exchange officials announced. Beginning with the Sunday evening GLOBEX®2 electronic trading session Jan. 30, the CME will list both Heating Degree Day (HDD) and Cooling Degree Day (CDD) indexes for 10 cities, adding Dallas, Des Moines, Las Vegas, Philadelphia, Portland, OR, and Tucson to the previous HDD listings for Atlanta, Chicago, Cincinnati and New York. In addition, 12 monthly contract expirations will be offered, covering the period February 2000 through January 2001. "Weather derivatives are the fastest growing new product in the over-the-counter derivatives market," CME Chairman Scott Gordon said. "The CME is pleased with the success of our initial launch of innovative temperature indexes on four cities, and we look forward to providing the participants in the OTC market with further opportunities to lay off their financial risk. "With these new listings, the CME will dramatically broaden the geographic coverage available to those needing to manage temperature-related risk," Gordon said, "and the addition of Cooling Degree Days provides a hedging vehicle for those businesses facing risk in the summer months". The CME launched the first exchange-traded weather derivatives on Sept. 22, 1999. The CME's HDD and CDD contracts can provide a risk management tool helping businesses protect their revenue during times of depressed demand or excessive costs resulting from unexpected or unfavorable weather conditions. Customers and potential customers include energy firms, insurance and reinsurance companies, as well as participants in the active OTC market in weather derivatives. HDD and CDD futures provide the weather derivatives market additional price transparency and virtually eliminate counterparty risk through the guarantees of the CME's Clearing House. Several energy firms active in the over-the-counter weather markets have agreed to serve as market makers in order to provide liquidity in the CME futures contracts: Aquila Energy, Castlebridge Weather Markets, Koch Energy Trading, Reliant Energy Services Inc. and Southern Energy. The Merc's HDD and CDD futures are sized at $100 times the CME HDD and CDD Indexes, respectively. The minimum tick size of 1.00 HDD or CDD index point equals $100. The contracts settle to the CME HDD or CDD index as calculated by Earth Satellite Corporation, a world leader in value-added weather services for agriculture and energy markets. The contracts trade electronically on the GLOBEX®2 system, virtually 24 hours a day, from 3:45 p.m. to 3:15 p.m. the following day. A Heating Degree Day occurs when the average temperature is below 65 degrees Fahrenheit. More specifically, HDD is 65 degrees F. minus the daily average temperature. Conversely, a Cooling Degree Day occurs when the average temperature of the day is above 65 degrees. CDD is the average temperature minus 65 degrees F. The CME contracts will be based on cumulative monthly HDDs and CDDs. Weather affects an estimated 20 percent of the $9 trillion U.S. economy, and the over-the-counter market in managing weather-related risk has grown significantly over the past few years.