The (NCDEX), in partnership with the and the Indian Institute of Technology Bombay, has launched a pilot futures contract tied to Mumbai’s monsoon rainfall.
The exchange on Wednesday introduced RAINMUMBAI, a rainfall index that measures deviations from the city’s 30-year long-period average (LPA) rainfall. Four monthly futures contracts beginning June will be available for trading, allowing market participants to take positions based on expectations of excess or deficient rainfall during the monsoon season.
The index will debut at a base value of 2,206 points, derived from historical rainfall data. Rainfall above the long-period average will push the index higher, while a rainfall deficit will drag it lower.
Specifications
Each contract will have a lot size linked to ₹50 per millimetre of rainfall, translating into an initial contract value of about ₹1.10 lakh. With margins fixed at 10-12 per cent, traders would need to set aside roughly ₹12,000 per lot. The contracts will be cash settled on expiry.
The exchange will introduce a liquidity enhancement scheme to ensure liquidity at the initial stage.
The product will be useful for wide range of investors including power utilities, banks with agriculture loan portfolio, and taxi aggregators as powerful risk management.
Arun Raste, MD & CEO, NCDEX said the exchange is working on the easterly monsoon and a move is on to launch other heat products to complete its offerings in the weather basket.
The exchange will also introduce a liquidity enhancement scheme to boost volumes in the initial phase, he said.
RAINCHENNAI soon
NCDEX will introduce a product on the easterly monsoon under RAINCHENNAI, he said. This will be built using daily rainfall data provided by IMD.
Under other insurance products, the weather derivatives are settled purely on observed data, eliminating the need for loss assessment and a faster settlement cycle, besides greater operational efficiency.
Bikram Singh, head-regional meteorological centre, Mumbai, said RAINMUMBAI serves as a broad ecosystem of participants across India’s weather sensitive sectors including agriculture and allied sectors, power and energy, financial institutions, logistics and transport.
As realiable and standardised weather data is critical for the development of this financial product and IMD’s long-term datasets provide a credible and transparent rainfall index, he said.