Formation of WBOT blows off course

Atlanta-based Weather Board of Trade (WBOT) has missed its planned February 2003 launch date, and its viability has been called into a question by a number of market participants. The online weather derivatives exchange originally planned to launch in October 2002 but put back its plans after encountering a number of problems regarding funding, the availability of meteorological data sets and its ability to secure charter member commitments.

In November 2002 WBOT also withdrew its long-term plans to publish prices on the Chicago-based Merchants’ Exchange, and it is still believed to be hunting for a market dissemination venue. Dan Parker, WBOT chief executive, repeatedly failed to respond to RiskNews’ requests for an interview on the matter.Market participants alleged to RiskNews that WBOT may have been misleading the market by suggesting that it had secured commitments from some of the biggest names in the weather risk industry. In November 2002 Parker said WBOT charter members included brokers GFI, Bank One, Chicago-based brokers Man Financial, brokers TFS, Chicago-based energy brokers Castlebridge Partners and US commodities brokerage FC Stone. But GFI, for one, never signed an agreement with WBOT, according to Michel Everaert, global head of product marketing at GFI in London. “We were offered the opportunity to sign up as a charter member but as WBOT is not yet trading, and the project is being delayed continuously, it still remains to be seen as to whether GFI will commit to the exchange,” Everaert said.

Officials at Bank One, FC Stone, Man Financial and TFS were not immediately contactable, although Parker said in November that future membership would cost $50,000.

But Robert Beyer, head of the weather desk at Castlebridge Partners, said his firm was a committed charter member, adding that the affiliation to WBOT involved being part of a “committee-like decision-making process”. Beyer was not aware of any set WBOT launch date, however. Charter membership is free, said a number of participants.

There also appears to be confusion about WBOT’s ability to clear its proposed contracts, which are geared to trading US temperature and precipitation measures, with sunlight and windspeed measures to be added at a later date. Parker has previously stated that the Chicago-based Board of Trade Clearing Corporation (BoTCC) had agreed to act as the clearing organisation. But a BoTCC spokesman said no such agreement was in place, although he believed the two parties were still in discussions. The BoTCC would only be in a position to make a commitment to clearing WBOT contracts when the exchange secures a suitable venue for market dissemination, the spokesman added.

But Stephen Mitchell, chief executive of Houston-based weather forecasting and risk technology firm Syncrasy, told RiskNews that such an agreement with the BoTCC had been finalised. Syncrasy works in partnership with WBOT to provide weather data.

In November 2002 Parker conceded that ABN Amro, Credit Lyonnais and Element Re had all pulled out of their charter member status at the exchange. Dutch bank ABN Amro was “reluctant to make a commitment to the exchange in terms of allocating resources”, Parker said, adding that although Credit Lyonnais had pulled out of being part of WBOT’s initial launch in the US, it may still work with the exchange if it rolls out a European operation, planned for late 2003. Parker also said Connecticut-based Element Re, another powerful force in the weather derivatives market, had shelved its plan to work with WBOT because it is not a member of the BoTCC – a necessary qualification for becoming a WBOT charter member.

Parker had originally planned a Canadian roll-out of the service in “early 2003” and claimed the exchange’s weather contracts would appeal to a large variety of users. “The heating degree day and cooling degree day model the Chicago Mercantile Exchange (CME) uses is energy-industry biased,” Parker told Risk in August 2002. “Our contracts, however, will appeal to a cross-section of industries because they are not just based on temperature, and they can also be based on regional baskets as well as specific weather stations.”

Last month the CME confounded sceptics who said the weather risk market wasn’t ready for an exchange-traded product, by announcing a record volume of 1,247 contracts in January, compared with just 11 weather futures contracts traded in January 2002.