The Chicago Mercantile Exchange plans to launch futures contracts that will allow investors in residential real estate to hedge their exposure to housing prices in 10 U.S. cities, beginning in the second quarter of 2006.

CME will offer cash-settled contracts based on Case-Schiller home price indices (CSIs) for Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, the New York commuter region, San Diego, San Francisco and Washington. CME will also list a composite index of the 10 cities.

“These products can provide market participants with an efficient hedging mechanism for real estate risk and allow them to effectively diversify their portfolios,” according to a statement by Craig Donohue, CME’s chief executive. “In the process, this innovative product may also have the effect of reducing the risk of real estate exposure.”

CME is working with MACRO Securities Research, a financial engineering firm, to design the new contracts.