Flexible Clearing for Index-Based Climate Contracts
Coming soon: As a joint venture with a European clearing house, ClearWeather Ltd will provide flexible clearing of a wide range of cash-settled climate derivatives around the world. Flexible clearing accommodates the need for highly-tailored structures which are a characteristic of the climate market with the benefits of a central counterparty (CCP).
A wide range of index types will be supported including those based on temperature, rainfall and wind power. The indexes can be based on any reference site or basket in the world subject to the appropriate quality data for pricing and settlement being available. Futures and options will be supported. All contracts will be margined individually based on their own risk profile. Full collateralization will not be required.Users will be able to define the exact parameters of the structure they require to clear meaning that bilaterally negotiated OTC deals can be "given up" to the CCP.
The advantages of flexible clearing are manifold: a CCP removes the needs for negotiating individual ISDAs as currently required in the bilateral market. Through a CCP, a hedger is able to access a wide range of providers of capital which they would otherwise not have access to, and to do so anonymously. A clearing structure permits netting and compression of positions making it easier for hedges to be unwound over time and not necessarily with the same counterparty.