Nasdaq Veles Water Indexes

A Clear Solution for Water Price Discovery

This Solution Helps

  • Investment Managers
  • Institutional Asset Managers
  • Insurance Companies
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Water's Value

Water is essential for our daily existence. Beyond the need for life, we rely on water for agriculture production, manufacturing, energy production, and even transportation. Maintaining access to reliable and dependable water supplies is crucial for continued economic activity. However, water management is often conducted without a transparent price discovery mechanism, resulting in an inefficient exchange framework. 

In 2018, Nasdaq partnered with Veles Water and WestWater Research to launch the Nasdaq Veles California Water Index (NQH20), the first of its kind water index that benchmarks the spot price of water in the state of California. The unparalleled transparency of this index fosters greater price discovery and allows for the creation of new tradable financial instruments to serve the needs of the California water market.

A Clear Solution

  • Tracks the spot rate price of water in the state of California
  • Represents current valuation of water as determined by water entitlement transactions from California’s surface water market and four adjudicated groundwater basins
  • Responsive to the supply and demand conditions within the underlying physical water markets
  • Delivers enhanced transparency and innovative risk management solutions to the individuals and entities that rely on water markets to align supply and demand

Discover the Market

Water market transactions involve the sale or lease of a wide range of ownership interests in water. A water right entitles the owner to divert or pump water from rivers, streams, and groundwater basins. Water rights are the most commonly traded category of ownership interest. Other commonly traded entitlements include shares in groundwater banks, surface reservoir storage rights, and entitlements to treated wastewater.

The overall size of water markets in the western U.S. is relatively small compared to other more commonly traded natural resources, however, given the relative scarcity of water supply, the region has seen the creation of nascent, but rapidly growing markets for the transacting of water rights. Water trading occurs in every western state, with more than 20 distinct regions where market activity routinely occurs.

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WestWater Research

California, particularly the Southern part of the state, is the largest market by volume and value. The value and volume of water traded annually in California is nearly four times that of other states. Other prominent markets are in the Front Range of Colorado, Arizona, and Central Texas (near Austin and San Antonio). These markets have formed at local and regional levels in response to a variety of market conditions, public policy, and ultimately the need to supply water for growing and changing demands.

Putting a Price on Water

Prices reflect the commodity value of water at the source and do not include additional costs associated with transportation or losses. Water price data is:

  • Aggregated from the five largest and most actively traded markets in California
  • Priced weekly in US$ per Acre Foot ($/AF), the prevailing market price for water transactions
  • Sourced weekly from Waterlitix™ – a pricing and market information database developed and maintained by WestWater Research

Estimates in the table below are based on total volume transacted across the western U.S. market over the past 10 years. Demand from the agricultural sector has exhibited the largest growth, with purchases doubling over the past 10 years. This growth has largely been driven by the expansion of high valued specialty crops within California.

Trade Volume Across the Western United States

Supply Demand
1. Agriculture: 67% 1. Municipalities: 44%
2. Municipalities: 16% 2. Environmental Buyers: 26%
3. Industrial Rights: 8% 3. Agriculture: 15%
4. Investor-owned Rights: 4%

A Fresh Approach

The NQH2O is responsive to the supply and demand conditions within the underlying physical water markets due to the fact that it is entirely reflective of the transactions occurring in those same markets. In periods of dry hydrological conditions* and limited supply of water**, the index responds to the upward pressure on price. The same relationship holds true in periods of wet hydrological conditions and excess supply of water.

A Fresh Approach

*When the Palmer Drought Severity Index is negative

**When the State Water Project Allocation line nears the bottom of the chart

WestWater WaterlitixTM

A widely followed measure of hydrology is the Palmer Drought Severity Index (PDSI), which uses readily available temperature and precipitation data to estimate relative dryness. Falling PDSI values, indicative of drier hydrological conditions, typically coincide with a decrease in the supply of water, an increase in the demand for water, and thus an increase in the prevailing market price for water.

Invest in the Future

Futures on the Nasdaq Veles California Water Index are available for trading through CME Group. The NQH20 futures are an innovative tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer, which can help to more efficiently align supply and demand of this vital resource. Click here to learn how to get started with Nasdaq Veles California Water Index futures (H2O) or visit cmegroup.com/waterfutures.

 


Meet the Team 

VelesWater Logo

Veles is a financial products company specializing in water pricing, water financial products, plus water economic and financial methodologies. Veles developed the original concept for water price indexing and is the co-creator of the NQH2O Index methodology along with Nasdaq. www.veleswater.com

 

WestWaterLogo

WestWater Research is the leading economic consulting firm in pricing, valuation, and transaction advisory services for water rights and water resource development. WestWater has provided transaction advisory and valuation services on over $700 million worth of transactions.
WestWater’s Waterlitix™ provides the transaction data utilized in the calculation of NQH2O. 
www.waterexchange.com.

 

Insights on NQH20

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    Resource Center

    • Tracks the spot rate price of water in the state of California
    • Represents current valuation of water as determined by water entitlement transactions from California’s surface
    water market and four adjudicated groundwater basins
    • Is responsive to the supply and demand conditions within the underlying physical water markets
    • Aims to deliver enhanced transparency and innovative risk management solutions to the individuals and entities
    that rely on water markets to align supply and demand
    • Water market transactions involve the sale or lease of a wide range of ownership interests in water. A water right
    entitles the owner to divert or pump water from rivers, streams, and groundwater basins
    • Water rights are the most commonly traded category of ownership interest. Other commonly traded entitlements
    include shares in groundwater banks, surface reservoir storage rights, and entitlements to treated wastewater
    • The overall size of water markets in the western U.S. is relatively small compared to other natural resources that
    are more commonly traded
    • These markets have formed at local and regional levels in response to a variety of market conditions, public
    policy, and ultimately the need to supply water for growing and changing demands
    • Prices reflect the commodity value of water at the source, and do not include additional costs associated with
    transportation or losses
    • Price data is aggregated from the five largest and most actively traded markets in California
    • Priced weekly in US$ per Acre Foot ($/AF)1, the prevailing market price for water transactions
    • Water price data is sourced weekly from Waterlitix™ – a pricing and market information database developed and
    maintained by WestWater Research
    • Given the relative scarcity of water supply, the Western United States has seen the creation of nascent, but
    rapidly growing markets for the transacting of water rights
    • Water trading occurs in every western state, with more than 20 distinct regions where market activity
    routinely occurs
    • California is the largest market by volume and value, followed by Colorado, Arizona, and Texas
    • The value and volume of water traded annually in California is nearly four times that of other states
    • The agricultural sector is the primary stakeholder of traded water transactions across western state water
    markets. Approximately 67% of total volume transacted over the past 10 years has involved a seller from this
    sector
    • The next major stakeholders are municipalities at 16%, followed by industrial rights at 8%, and investorowned
    rights at 4%
    • On the demand side, municipalities are the largest buyer category with 44% of total market, followed by
    environmental buyers at 26%, and the agriculture sector at 15%
    • Demand from the agricultural sector has exhibited the largest growth, with purchases doubling in the last 10
    years. This growth has largely been driven by the expansion of high valued specialty crops within California
    • In periods of dry hydrological conditions and limited supply of water, the index responds to the upward pressure
    on price. The same relationship holds true in periods of wet hydrological conditions and excess supply of water3
    • A widely followed measure of hydrology is the Palmer Drought Severity Index (PDSI)4, which uses readily
    available temperature and precipitation data to estimate relative dryness
    • Falling PDSI values, indicative of drier hydrological conditions, typically coincide with a decrease in the supply of
    water, an increase in the demand for water, and thus an increase in the prevailing market price for water
    • FAQ: NQH20 Index

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    • FAQ: NQH20 Futures

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    Key Benefits

    First-of-its-Kind

    New index designed to track the spot rate price of water, with the goal of representing the current valuation of water as determined by water entitlement transactions.

    Transparent

    Supports price discovery and allows for the creation of a tradable financial instrument to manage financial exposure associated with water supply risk.

    Trusted Data Source

    Water price data is sourced weekly from Waterlitix™ – a pricing and market information database developed and maintained by market leader WestWater Research.

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