The CME Group is set to launch futures contracts tied to the spot price of water for the first time ever this week.
The contracts will allow investors and farmers alike to bet on the future price of water. The contracts are tied to the $1.1 billion California spot water market.
While water will officially join the likes of gold, oil, and other commodities in being traded on Wall Street, the contracts will be financially settled. This means buyers of the contracts who hold on through expiration won’t be greeted by a delivery of millions of gallons of water like they would for other commodity based futures like oil and grain.
The water contracts are tied to the Nasdaq Veles California Water Index which was launched two years ago. The index is driven by the volume-weighted average of the transaction prices in California’s five largest and most actively traded water markets.