Pollution of the oceans, droughts, overpopulation of the planet and, as a consequence, the lack of water are the topic of long, controversial and increasingly urgent and heated debates.
Today, about 2000 million people live in a water shortage regime and in the near future two-thirds of the world may join them.
Due to a possible global shortage, water futures will now be traded on Wall Street, thereby equating this vital natural resource with resources such as oil and gold. The ability to manage water risks is more important than ever.
September fires and heat ruined the US West Coast, where such contracts first appeared. Such contracts are designed to protect and insure water consumers, as well as to contain a possible increase in the price of this resource, more balanced supply and demand, competently manage possible risks, and mitigate the financial hit when a situation occurs. Bidding will begin at the end of the fourth quarter of 2020, depending on when the contract is approved by regulators.
Investment funds, farmers, public utilities are the main market entrants and users of water agreements.
The physical side of the supply of water has not yet been fully settled, in contrast to the financial side of the issue. The new contract is not expected to require a physical supply of water after it expires. The subject of exchange will be the monetary difference between the price of the contract and the actual price of the asset on the date of the contract.
The exchange took the Nasdaq Veles California Water Index, which has existed since 2018, as the underlying asset for futures. This index, on a weekly basis, sets the ideal water price for a given period of time. The total California water market is now 1000 million.
For now, it remains for us to observe the development of a new water futures deals.