Variations in temperature and weather have a major impact on a large number of business sectors including energy, insurance, agriculture, retail and leisure industries. The provision of standardised, exchange-traded futures contracts will offer participants in these sectors the opportunity to significantly enhance their risk management and contingency planning.
Simon Raybould, Managing Director of Sales and Marketing at LIFFE, said "The need for all segments of commerce to embrace the concept of weather futures trading, and to acknowledge the efficacy of hedging via an exchange-traded mechanism, is an important message which LIFFE sends with the introduction of this innovative and relevant product".
The initial listing of six LIFFE Weather Futures contracts will be settled against the monthly and winter season indices based on daily average temperatures in London, Paris and Berlin. The Exchange introduced these indices earlier in the year. Full details together with the methodology behind the underlying indices are already available on www.liffeweather.com.
LIFFE's Director of Non-Financial Products, Ian Dudden said, "Variations in weather are frequently cited by individual companies and industry sectors as having a major impact on productivity, turnover and overall profitability. The LIFFE Weather Futures contracts are set to become an important risk management instrument for anyone with a significant exposure to the unpredictability of weather."
"We expect participants in the energy sector to be particularly attracted to these contracts. However, the unpredictability of weather impacts on many diverse sectors including insurance and agriculture as well as the manufacturers and retailers of everything from soft drinks to cold remedies, and those involved in the organisation and provision of everything from pop festivals to package holidays. Over time this suite of contracts will grow to offer effective hedging of weather risk on a global basis".
Stuart Jones, Business Development Manager for weather risk at Accord Energy, the trading subsidiary of Centrica plc said "We welcome the launch of LIFFE's weather futures contracts which we believe will further help to drive forward the promising growth in weather market liquidity seen this year. As one of the largest players in the European weather trading market we remain committed to participating in and developing the weather market, both to hedge our own weather exposures and as a profitable trading activity. We intend to participate actively in the LIFFE weather futures market".
In respect of the monthly weather futures contracts, twelve delivery months will be available at any one time, the first delivery months available to trade will be January 2002 to December 2002 inclusive. With regard to the winter season contracts, two delivery months will be available starting with March 2002 i.e. the November 2001 to March 2002 winter season.
