SET mulls weather futures

The Stock Exchange of Thailand (SET) is conducting a study of whether to add a weather futures index to trade on the Thailand Futures Exchange (TFEX).

The aim is to provide a risk management tool that would enable farmers to hedge against weather events.

The study is still in the early phases. The TFEX will gauge demand and supply before deciding on establishing such an index, said managing director Rinjai Chakornpipat.

A weather futures index is a type of weather derivative product where temperature is the most commonly used underlying factor, unlike more traditional derivatives. The settlement price of the underlying weather futures index could be equivalent to the value of the relevant month’s heating degree days or cooling degree days.

Based on international standards, 18C (64F) is the baseline from which deviations are measured.

Futures products have gained popularity rapidly and become a more common risk management instrument among energy companies to hedge against losses caused by unexpected shifts in weather conditions, Ms Rinjai said.

It is necessary for commodity-related business, of which operations directly link to weather, to manage risk incurred from weather, she said. If the SET decides to unveil a weather futures index, market makers will be assigned to increase trading liquidity.

TFEX has eight products: SET50 index futures, SET50 i ndex options, sector index futures, stock futures, gold futures, rubber futures, interest rate futures and USD futures.

In related news, Prasert Tantayawit, managing director for investment banking at Maybank Kim Eng Securities Thailand, said the initial public offering (IPO) market is expected to pick up this year after a moribund 2016.

Four companies have launched IPOs this year — one on the SET and three on the Market for Alternative Investment — mobilising a combined 1.71 billion baht. Synergetic Auto Performance (ASAP) will have its IPO subscription run through Friday on the SET.