CME to launch Japanese weather derivatives contracts

The Chicago Mercantile Exchange (CME) will launch Tokyo and Osaka weather derivatives contracts on July 26, the first of such contracts to serve an Asian market.

Wolverine Trading, an energy trading firm, will serve as the lead market maker on the Japanese city weather contracts. Wolverine is also the lead market maker for CME’s other US and European weather contracts.

“With weather posing one of the largest variables impacting economic activity and individual corporate performance across many industries, Chicago Mercantile Exchange …will expand its innovative weather futures and options product lines with contracts serving Tokyo and Osaka, Japan, the first exchange-listed contracts serving Asian markets,” CME said in a statement.

The contracts will include monthly and seasonal contracts, and will be based on average temperatures in degrees Celsius and will settle on an index compiled by Earth Satellite Corporation, which has provided data for all CME’s weather contracts since CME began offering these contracts in 1999.

Tokyo and Osaka will each have contracts with expirations listed for each month of the year. Two seasonal contracts will also be listed for each city, including one for winter from December to March, and the other for summer from July to September.

The Tokyo and Osaka contracts will be priced in Japanese yen and will be sized at 250,000 yen times the respective Pacific Rim Seasonal Index for Tokyo and Osaka. The Pacific Rim Seasonal Index is calculated by averaging the average daily temperatures for each city.

The contracts will trade on CME’s Globex electronic trading platform from 5 pm to 3.15 pm Chicago time the following day. Options on all CME weather futures will trade on CME’s trading floor from 8.30 am to 3.15 pm Chicago time.

CME currently lists weather futures and options on futures contracts based on aggregate temperatures for 20 cities, including 15 in the US and five in Europe. In the first six months of 2004, over 25,000 weather contracts worth over $580 million were traded on CME, representing more than a 170% year-on-year increase over 2003 in volume terms.