John Foyle, LIFFE's Deputy Chief Executive said, "This announcement follows extensive consultation with key weather market practitioners and is the first step toward providing standardised cash-settled futures contracts, allowing effective management of exposure to weather risk.
In addition, we believe this will facilitate and promote the growth of the weather market globally."
LIFFE's indices are uniquely based on the "monthly mean of daily average temperature". This is calculated by taking the midpoint between the minimum temperature of the day and the maximum temperature of the day which, when combined with the averages for the month to date, forms a cumulative average for the month.
Bill Smit, LIFFE's Head of Non-Financial Products explained, "We have chosen to focus on average temperature rather than Heating Degree /Cooling Degree Days as this has the benefit of consistency all year round and remains relevant not only to the energy industry but also to a wide range of other market sectors.
We believe that these indices will become one of the key benchmark pricing mechanisms for weather risk management."
The underlying locations for the initial three indices will be London, Paris and Berlin. In order to ensure the quality and integrity of the indices, the data for the three locations is received daily from the domestic meteorological offices: The Met Office (UK), Meteo France (France) and DWD (Germany).
