Independent · Accurate · Reliable
What is Settlement Data?
Meteorological Settlement Data is the data used to settle an index-based climate risk-transfer transaction and is provided by the Settlement Data Provider as listed in the transaction term sheet. This data is subject to quality control to confirm the accuracy of the observations. The use of a formal approach to the provision of Settlement Data addresses possible problems due to ill defined-reporting conventions, missing observations, delayed reports, and even potential moral hazard.
Settlement Data
The official meteorological data used to settle a weather risk contract. This data is unique in that it must meet certain criteria (see below).
Settlement Data Provider
The provider of Settlement Data as listed in the transaction term sheet.
The index-based climate market is a fast-growing segment of the financial markets that allows companies exposed to weather to hedge that risk. Risks that can be hedged include rainfall, solar radiation, wind, temperature and snowfall. Speedwell Settlement Services is a major provider to the market of the data required to settle such contracts and is regulated in this capacity in the EU as a Benchmark Administrator. Speedwell Settlement Services is also the provider of Settlement Data for trades priced through the weatherXchange Platform.
Speedwell Settlement Services Ltd has been granted a Part 4A permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity of administering a benchmark.
Why do I need Settlement Data?
There are many reasons why Settlement Data is critical when transacting a weather hedge:
Meteorological Data may have problems too...
Missing values and erroneous observations are not uncommon. In addition, weather stations are subject to being moved or even closed completely.
Attention to Detail
Hedgers and their counterparties often underestimate the detail required to unambiguously document the meteorological aspect of a transaction. This includes which data climate sources are used, which reporting convention is applied, the timing of data delivery and actions required in the event of data problems.
Regulations
For certain climate risk-transfer contracts, EU and UK regulations require that Settlement Data is produced by a regulated entity. Speedwell Settlement Services is regulated as a Benchmark Administrator by the FCA in the UK. This also satisfies EU requirements.
Settlement Data Checklist
Settlement Data is a particular type of data that must meet certain criteria. The following checklist provides a quick reference for assessing whether a given dataset is appropriate for settlement.
Specific
Settlement Data is produced per the Settlement Data Specification. Details concerning the station identification, observation convention, rounding, units, Settlement Data Methodology, and publication schedule are all documented. With Settlement Data there should be no confusion as to what the data is and how it is processed.
Accurate
Settlement Data must be accurate. Data accuracy is ensured by the implementation of the Settlement Data Methodology. This involves the analysis of raw data in order to detect data errors and missing data. Erroneous and missing values are replaced with estimates of what the true value should be using industry-standard techniques.
Independent
Settlement Data should be provided by an independent third party. Settlement Data should never be processed by either counterparty to the trade. Knowledge relating to issues such as weather station reliability, observing practices, and data processing is often asymmetric.
Transparent
Any necessary modifications to the underlying raw data should be carefully documented and archived. Counterparties to the transaction should be notified of changes to the data and the logic behind any changes.
Official
Settlement Data represents the official legally binding data used to settle an index-based weather hedge. Settlement Certificates are prepared and published per the Settlement Data specification.
Reliable
The timeliness of data publication is essential for index-based climate risk transfer. The Settlement Data Methodology ensures a data value is always available in the event that the underlying raw data is delayed or is missing. Contract counterparties can be assured that they will have the data they need allowing timely in-period valuations and final determination of end-of-period payoff.