The leading and most diverse derivatives marketplace of the world, CME Group and NASDAQ announced plans for a new features contract on the Nasdaq Veles California Water Index (NQH2O). The CME group will be announcing the Nasdaq Veles California Water Index futures contract in Q4 after it receives its regulatory review. $ 1.1 billion California’s water market would get tied to CME’s contract.
This will be the first one of a kind tool that would be used to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer. This will in turn help to achieve more efficient and align supply and demand of this vital natural resource.
Water scarcity is a problem that has been reported in many parts of the world. Along with climate change and other natural changes, the availability of clean water would be scarce in the near future, as predicted by several researchers. On one, side two-thirds of the earth constitute the liquid, and climate change is causing a rise in the seawater level drastically submerging seashores. On the other hand, water fit for consumption is meager. The rising population of the world stands as another big hurdle as with the rise in population more water would be required to fulfill the necessity. According to CME, almost two-thirds of the world’s population is expected to face water shortages by 2025.
CME Group Inc. says adding water to their charts would allow big Californian water consumers to protect themselves against the sudden hike in water prices. They also claim that this decision would benchmark water supply and signal how acute water scarcity is becoming in the state and the globe.
Tim McCourt global head of equity index and alternative investment products at CME, said, “Water scarcity is certainly one of the biggest challenges facing communities and individuals today across the globe, where currently about 2 billion people are already living in countries experiencing high water stress.”
He also added, “With nearly two-thirds of the world’s population expected to face water shortages by 2025, water scarcity presents a growing risk for businesses and communities around the world, and particularly for the $1.1 billion California water market. Developing risk management tools that address growing environmental concerns is increasingly important to CME Group. This innovative, new water contract builds on our strong partnership with Nasdaq, as well as our proven 175-year track record of helping end-users and other market participants manage risk in essential commodity markets including agriculture, energy, and metals.
Comments of Carter Malloy, founder, and chief executive officer of AcreTrader, a farmland investing platform was reported by the Mint as he said, “It’s really a unique mechanism for investors themselves and California to be able to at the very least understand and price the risk and potentially hedge the risk of water price volatility.”
Although we do not, right at this instance, have any clear visibility on what water prices would be in the future, climate advocates have warned in recent years for the potential of water wars as competition increases between needs from agriculture, energy, and growing cities.
Scarcity in water poses a huge problem in the production of food. As the availability of water would become sparse, the introduced drought would make farming increasingly difficult.
Many see the preservation and distribution of water as an attractive investment. Investors like Jeff Ubben launched Inclusive Capital Partners to tackle problems ranging from environmental damage to food scarcity through their funds.
Patrick Wolf, a senior manager for Nasdaq Global Indexes said, “What we really wanted to be able to do was first to provide clear and transparent rules-based information to the marketplace.”
Lauren Dillard, Executive Vice President and Head of Nasdaq Global Information Services said, “The Nasdaq Veles California Water Index helps drive better outcomes for water market participants through verifiable price discovery. Our collaboration with CME Group has the power to deliver greater transparency around the management of an important natural resource.” (Globe Newswire/Mint)