TP ICAP Group has today revealed its partnership with environmental risk-management solution provider Speedwell. The two companies announced the launch of the ICAP-Speedwell Climate Index, which uses global weather data to track climate change allowing financial risk related to the rate of climate change to be traded.
The index is designed to provide a reliable data source and help market participants make better informed investment and hedging decisions. According to TP ICAP, this will lead to better management of financial risks associated with climate change.
Speedwell is responsible for the development and maintenance of the index. It represents the average global temperature based on data taken from 50 independent national weather stations from around the globe. Built to meet the needs of financial risk transfer, the index provides the underlying data necessary for market participants to transact, tailored structures relating to climate change using OTC futures and options.
TP ICAP noted that the Index will allow counterparties to flexibly create structures with varied payoffs over specific periods of time. These transactions will supply data for the Index to in turn provide a correlation between the global temperature change and financial risk appetite.
Nicholas Ernst, Managing Director, Weather Markets, TP ICAP said:
The introduction of the Index has the ability to dramatically change how people calculate the financial impact of global climate change, providing comprehensive data to quantify the impact of future temperature changes for the first time. Climate change is a significant financial risk and quoting markets in this way is an important step in not only measuring that risk, but also understanding the cost of climate change as we move towards a low-carbon economy.
David Whitehead, Co-CEO, Speedwell Weather, said:
As with all Speedwell products the Index has been designed specifically for financial transactions. Historical data will be made available for pricing and structuring; forward curves, market prices, and index forecasts will be available for managing risk, and certified Settlement Data for final settlement of open contracts.
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