Seasonal tenor is most frequent. A solution to managing natural gas exposure over a heating season is with a weather swap that hedges volume risk. The hedger would be paid in the event the winter is warmer than normal. Commodity contracts frequently call for physical delivery. There is substantial room for growth in this market.
Current volume averages two transactions a day.
Liquidity is in major urban markets. Jefferies anticipates new entrants will come from the energy, agriculture and investment banking sectors. Lilly M. Palmieri has worked as a financial risk manager for a number of years with corporations, investment banks and as a consultant. She is a contributing editor for Financial Engineering News.