January 19, 2000

Liffe to Start Internet-Based Weather Derivatives Exchange

London, Jan. 19 (Bloomberg) -- The London International Financial Futures and Options Exchange will start an online weather derivatives market in March that is intended to help companies hedge against changes in climate.  The exchange, known as I-WeX.com, is being developed by Liffe and two U.K. information technology companies. It hopes to attract users from the energy, insurance, agriculture and leisure industries whose revenues are linked to weather patterns. Trading is growing in weather derivatives as global gas and electricity markets are deregulated and companies whose revenues are tied to the weather look for ways to hedge their risks. A utility that expects a warmer-than-normal winter can sell weather derivatives to offset the potential revenue losses.

``The weather-related market is enormous,'' said Richard Sandor, chairman of Chicago-based Environmental Financial Products LLC, which designs new commodity and environmental markets. ``It will involve multi-billions as the market matures,'' said Sandor, a former director of the Chicago Mercantile Exchange, which began trading weather derivatives last year.

I-WeX will operate as an Internet-based over-the-counter auction. While power companies will be able to access the I-WeX site directly, the main users are expected to be brokers and insurance companies, Liffe said.  Liffe intends to unveil I-WeX during a press conference at its London headquarters tomorrow. Over-the-counter trading begins March 1, and trading via futures contracts is to be introduced on Liffe's Connect trading platform in the fall.

``The launch of I-WeX.com represents a major breakthrough for the emerging weather derivatives market and will, we believe, create the appropriate market conditions for Liffe to launch standardized, cleared weather contracts,'' Bill Smit, Liffe's head of non-financial products, said in a statement.

The CME in September began trading in futures and options tied to temperatures in four major U.S. cities. The CME contract tracks heating degree days which occur when the average daily temperature falls below 65 degrees Fahrenheit.  Liffe's partners in I-WeX are WIRE Ltd., a U.K. company specializing in Internet services for financial firms, and Intelligent Financial Systems, London-based software company.