Old Pinawa Dam Provincial Heritage Park and Winnipeg River

As water evolves into an increasingly scarce and precious commodity, CME Group is preparing to float the first water derivatives.

The Chicago-based derivatives exchange said that it is planning to launch futures contracts based on the Nasdaq Veles California Water Index (NQH2O) in the fourth quarter.

The new product, which is subject to regulatory approval, is intended to give agricultural, commercial, and municipal water users “greater transparency, price discovery, and risk transfer,” the exchange said in a release.

Additionally, CME Group said that establishing a liquid, transparent futures market for water “will help to create a forward curve so water users can hedge future price risk.”

The index, which was launched in 2018, sets a weekly spot price for water rights in California based on transactions in its five biggest water markets.

“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,” said Tim McCourt, global head of equity index and alternative investment products at CME Group.

“Developing risk management tools that address growing environmental concerns is increasingly important to CME Group,” he added.