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CME Group Plans to Launch Water Based Futures

September 21, 2020

Recentlty CME Group, the world’s largest derivative exchange for different asset classes announced plans to launch the first ever water future. It is going to be based on the NASDAQ Veles California Water Index (NQH2) and is expected to be launched in late Q4 after regulatory approval.

The initiative will serve as a tool for agricultural, commercial, and municipal water users to have transparency, discovery, and risk transfer in aligning supply and demand of this necessary resource. By 2025 it is expected nearly two thirds of the world to face water shortages, becoming a growing risk for businesses and cities around the world. Tools such as these will help in managing risk to address environmental concerns.

The NASDAQ Veles California Water Index will facilitate water market participants in price discovery. It will allow users to hedge future price risk and plan for changing costs of water. Each contract on the NQH20 Index will represent 10 acre-feet of water and will set a weekly benchmark spot price of water rights in California.

Some of the quandaries related to water includes its transportation, which may as well be more expensive than what someone paid for it. These markets have to be local and reflect the same conditions of the area.