The much-awaited Northeast Monsoon is set to bring more than relief from Chennai’s scorching summer this year. It could also give investors a new way to bet on the city’s rainfall, with the weather now officially entering the financial markets.
The National Commodity and Derivatives Exchange (NCDEX) on Monday announced the launch of RAINCHNNAI, a rainfall-based weather derivatives futures contract that will allow market participants to hedge financial exposure linked to the Northeast Monsoon, which accounts for nearly 70% of Chennai’s annual rainfall.
RAINCHNNAI will enable participants to manage rainfall-linked risks through a transparent, standardised and cash-settled futures contract.
The launch follows NCDEX’s experience with RAINMUMBAI, India’s first exchange-traded weather derivatives contract, launched in May. The Mumbai rainfall’s future contract was developed in collaboration with IIT Bombay and anchored in official data from the India Meteorological Department (IMD). Together, RAINMUMBAI and RAINCHNNAI extend rainfall risk management across India’s monsoon cycle, covering the Southwest Monsoon from June to September and the Northeast Monsoon from September to December.
Kedar Deshpande, Chief Business Officer, NCDEX, said RAINCHNNAI, along with RAINMUMBAI, completes a monsoon risk management cycle that runs from June through December, covering both of India’s major monsoon systems.
“The contract is built on a scientifically structured Cumulative Deviation Rainfall (CDR) model, which tracks the deviation of actual rainfall from the Long Period Average (LPA) at Chennai’s Meenambakkam and Nungambakkam stations, benchmarked against decades of IMD data,” Deshpande said in a release.
The methodology for RAINCHNNAI is similar to that of RAINMUMBAI and is based on the LPA determined from the past 50 years and actual rainfall. Unlike traditional insurance products, weather derivatives are settled purely on observed rainfall data, eliminating the need for loss assessment. This enables faster settlement cycles and greater operational efficiency for participants.
NCDEX said RAINCHNNAI and RAINMUMBAI together build a comprehensive rainfall risk management ecosystem while creating a new asset class for India’s climate economy.
The contract has a tick size of 1 mm and a lot multiplier of ₹50 per mm. The maximum order size is 50 lots, while the minimum initial margin is 10%. The contract will be cash-settled, with rainfall data sourced from IMD surface rainfall observations at the Meenambakkam and Nungambakkam stations.
Trading will be available from Monday to Friday between 10:00 am and 11:55 pm. The initial daily price limit (DPL) has been set at 6%, with an enhanced slab of 3% and an aggregate DPL of 9%.
The last trading day will be the business day immediately preceding the last calendar day of the contract expiry month. The final settlement price will be arrived at using the underlying CDR spot value determined on the due date or expiry day of the contract.