Nasdaq Veles California Water Index Futures ‒ Frequently Asked Questions


Launch

1. When will the Nasdaq Veles California Water Index (NQH2O) futures be listed for trading by CME Group?

CME Group will launch the product for trading on the CME Globex electronic trading platform and for submission for clearing via CME ClearPort in Q4-2020 pending all regulatory approvals.


2. What are NQH2O futures?

NQH2O futures are financially settled contracts based on the Nasdaq Veles California Water Index.


3. Why is CME Group choosing to launch this product?

California is the largest water market in the US. The value and volume of water traded in California is four times that of any other state. To date, market participants haven’t had a viable product to manage the price risk associated with the scarcity of this vital resource. CME hopes that by introducing a futures contract that settles to an index tracking the price of water in California, participants in this important market will be able to efficiently hedge their exposure.


4. What is the Nasdaq Veles California Water Index?

Nasdaq and Veles Water have partnered with WestWater Research, LLC, the leading economic and financial consulting firm in water trading, to develop the Nasdaq Veles California Water Index.

This index was launched by Nasdaq in October 2018 and tracks the price of water rights transactions (leases and sales) across the five largest and most actively traded regions in the state of California, including surface water and four adjudicated groundwater basins. NQH2O utilizes WestWater’s WaterlitixTM database as the source for the underlying data.


5. How is the index priced?

NQH2O is priced in US dollars per acre foot. An acre foot is the volume of water required to cover one acre of land (43,560 square feet) to a depth of one foot, which is equivalent to 325,851 gallons.

The value of the index reflects the volume-weighted average price of water, at the source, excluding conveyance costs and losses in the underlying markets after adjusting for idiosyncratic pricing factors specific to each of the eligible markets and transaction types.


6. How often is the index calculated?

The index is calculated and disseminated once per week and published every Wednesday morning at approximately 8:30am Central Time (CT). It represents the water leases and sales transactions, in the covered regions, that occurred Monday through Friday of the prior week.


7. Where can I learn more about the Nasdaq Veles California Index?

To learn more about the index, please go to https://indexes.nasdaqomx.com/Index/Overview/NQH2O.


8. Where can I find historical NQH2O data?

To view and download historical data for the index, please go to https://www.nasdaq.com/market-activity/index/nqh2o/historical.


9. Under which DCM will these contracts be listed?

NQH2O futures will be listed on the CME DCM.


PRODUCT DETAILS

10. What are the contract specifications?

Contract unit 10 acre feet x NQH2O Index
Price Quotation US dollars per acre foot
Minimum price fluctuation Outrights: $1.00 per acre foot equal to $10.00 per contract
Calendar spreads: $0.25 per acre foot equal to $2.50 per contract
Contract Months
Eight consecutive quarterly contracts (Mar, Jun, Sept, Dec) plus nearest two serial months
Settlement method Financially settled
Block trade minimum threshold 25 contracts
Last trading day Business day prior to final settlement day
Final settlement day Third Wednesday of the contract month if a CME business day, otherwise the next business day

Subject to regulatory approval.


11. How does the contract settle on a daily basis?

CME Group staff determines the daily settlements for NQH2O futures based on trading activity on CME Globex between 2:55:00 p.m. and 3:00:00 p.m. Central Time (CT), the settlement period, as follows:

  • Tier 1: NQ H2O futures VWAP (volume-weighted average price) of all trades that occur between 2:55:00 p.m. and 3:00:00 p.m. CT, the settlement period, rounded to the nearest tradable tick. If the VWAP is exactly in the middle of two tradable ticks, then the settlement will be the tradable price that is closer to the contract’s prior day settlement price.
  • Tier 2: If no trades occur on CME Globex between 2:55:00 p.m. and 3:00:00 p.m. CT, the settlement period, then the last trade (or the contract’s settlement price from the previous day in the absence of a last trade price) is used to determine whether to settle to the bid or the ask during this period.
    • If the last trade price is outside of the bid/ask spread, then the contract month settles to the nearest bid or ask price.
    • If the last trade price is within the bid/ask spread, or if a bid/ask spread is not available, then the contract month settles to the last trade price.
  • Tier 3: In the absence of any trade activity or bid/ask in a given contract month during the current trading day, the daily settlement price will be determined by applying the net change from the preceding contract month to the given contract month’s prior daily settlement price.

12. How is the final settlement price determined?

The final settlement price is the value of the NQH2O Index, rounded to the nearest $0.01 per acre foot, on the third Wednesday of the contract month (final settlement day).

In the event that the NQH2O Index is not publishable or published on the final settlement day, and therefore, CME cannot determine the NQH2O final settlement price, then final settlement of the CME NQH2O futures contract is at the discretion of the Exchange and may be deferred or postponed for up to 14 consecutive calendar days.


13. How many contract months will be listed at a given time?

CME will list eight consecutive quarterly contracts in the March Quarterly Cycle (Mar, Jun, Sep, Dec) along with the two nearest serial months.


14. What are the trading hours?

Globex: Monday – Friday 9:00 a.m. – 4:00 p.m. CT

ClearPort: Sunday – Friday 5:00 p.m. – 4:00 p.m. CT with a trading halt from 3:15 p.m. – 3:30 p.m. CT.


15. Are NQH2O futures eligible for block trading?

Yes, the contract is block trade eligible subject to Rule 526. The minimum block threshold level is 25 contracts.


16. Are NQH2O futures EFP/EFRP-eligible?

Yes, EFP/EFRP transactions are allowed subject to Rule 538.


17. Are NQH2O futures BTIC (basis trade at index close)or TAS (trade at settlement) eligible?

The contracts are not eligible for BTIC or TAS transactions.


MARGIN DETAILS

18. What are the margin requirements for NQH2O futures?

Early estimates for the indicative margin of the Nasdaq Water futures contract is around 10% of the notional price of the contract. This is subject to change prior to launch.


19. What are the available margin credits for offsetting positions between the NQH2O futures and CME’s major US benchmark index futures?

Margin credits are based on current market conditions and, thus, are subject to change.

Learn More about margins:


ADDITIONAL INFORMATION

20. Will there be on-screen market makers for the Nasdaq Veles California Water Index Futures?

CME Group plans to introduce a market maker program to assure continuous two-sided markets are quoted on-screen throughout the trading day to provide CME Globex liquidity.


21. How can I see prices for NQH2O futures?

Delayed quotes will be available online on the CME Group website. You can also access quotes through major quote vendors.


22. Will CME also list options on NQH2O futures?

Initially, only NQH2O futures will be available for tradingand clearing.


23. How can I trade?

In order to trade NQH2O futures you need to have an active account with a Futures Commission Merchant (FCM). Visit https://www.cmegroup.com/tools-information/find-a-broker.html for a list of registered futures brokers.


24. How can I get access to CME Globex?

To access CME Globex, you must have a relationship with a CME Clearing Member Firm.

Learn more about connecting to CME Globex


25. Where can I find more information on NQH2O?

Visit cmegroup.com/water for the latest information. You can fill out the form on this page to stay informed of NQH2O product updates.


About CME Group

As the world's leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. Comprised of four exchanges - CME, CBOT, NYMEX and COMEX - we offer the widest range of global benchmark products across all major asset classes, helping businesses everywhere mitigate the myriad of risks they face in today's uncertain global economy.

Follow us for global economic and financial news.

CME Group on Twitter

CME Group on Facebook

CME Group on LinkedIn

Nasdaq Veles California Water Index futures

Learn about the NQH2O futures and how it can help you manage water price risk.

Explore NQH2O futures