What type of financial instruments are HuRLOs™?
Commodity options. The commodity is the occurrence of a hurricane making landfall first in one of 78 mutually exclusive coastal counties or regions or that no hurricane will make landfall. The option is the right to automatic exercise and a settlement amount if a hurricane makes landfall first in the selected county or region or no landfall occurs in a calendar year. In effect, and in financial market terms, the option is a call option — the right to buy the selected outcome/location. HuRLOs™ are traded on an electronic trading platform operated by WRS through the CME Alternative Marketplace, Inc.’s (“CME AM”) exempt board of trade (“EXBOT”). Unlike many traditional options, HuRLOs™ have an automatic exercise settlement feature, rather than a discretionary choice to exercise.
