This article is from the Final-Fantasy and other Square Soft Games FAQ, by firstname.lastname@example.org (Nick Zitzmann) with numerous contributions by others.
There are three items that he will trade with you:
* Trade the Guide Book for the Underwater Materia.
* Trade the Desert Rose for the Gold Chocobo.
* Trade the Earth Harp for a set of Master Materia.
To get the Guide Book, go to Junon and fight enemies that appear in the
glass walkway that leads to the underwater Mako Reactor. One of your
opponents will be the Ghost Ship. Make sure you have a Morph materia
equipped, and kill it with a Morph attack to get the Guide Book. Your
reward, the Underwater Materia, is only useful when fighting the Emerald
Weapon. When you wear it, your entire party can breath underwater, so
you won't have to worry about the 20-minute time limit like you'd
normally have to.
To get the Desert Rose, kill the Ruby Weapon. If you give the Desert
Rose to the trader, he'll put a Gold Chocobo in the stalls at the
Chocobo Barn that you can use. Make sure you've bought a stall, though!
To get the Earth Harp, kill the Emerald Weapon. Trade it with the man at
Kalm and he'll give you a set of three materia: Master Command, Master
Magic, and Master Summon.