"The impact of weather can influence regional and local markets, playing a critical role in the overall economy," said CME Managing Director of Products and Services Rick Redding. "Since 1999, CME has been offering temperature- based futures products to help market participants manage weather-related risks. Backed by CME Clearing, CME weather futures provide the safety and soundness investors are seeking to manage their weather-related risk."
"From municipal snow removal budgets to holiday retail sales, snowfall, or lack thereof, can have a major impact on local and regional economies," observed Scott Mathews, President of WeatherEX LLC, a commodity trading advisor and manager of a branch office of Glass Futures Corp., an introducing brokerage firm. "With CME snowfall futures and options, our clients will be able to hedge either the expense or the revenue side of the snow risk equation."
The CME Snowfall Index defines daily snowfall as the total snowfall recorded at a particular location between 12:01 a.m. and 12:00 p.m. midnight, as reported by Earth Satellite Corporation (EarthSat). Trace amounts of daily snowfall will be considered to be zero.
Monthly snowfall is defined as the sum of daily snowfall values for a particular location for a calendar month. A unique feature of the snowfall index includes the fact that the daily settlement price can be zero since a strike price of zero equates to no snowfall.
CME currently offers weather derivative products in 29 cities around the world, including 18 in the United States, nine throughout Europe and two in Japan. The exchange also offers a frost index contract for Amsterdam, Netherlands. Monthly weather volume in January 2006 reached 108,000 contracts traded compared with 42,000 in January 2005. Overall weather volume in 2005 surpassed 889,000 contracts at CME.
