Chennai’s rain gets a market price: NCDEX launches RAINCHNNAI weather derivatives futures contract

Chennai’s rainfall has now officially entered the financial markets, with NCDEX launching 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.


Launched on Monday, August 31, RAINCHNNAI expands NCDEX’s monsoon risk management framework introduced earlier this year with RAINMUMBAI, extending exchange-traded rainfall risk management across the Southwest and Northeast monsoon seasons.


The contract is designed to help market participants hedge financial exposure arising from the Northeast or retreating monsoon, which accounts for nearly 70% of Chennai’s annual rainfall.

According to NCDEX, RAINCHNNAI builds on the experience of RAINMUMBAI, described by the exchange as India’s first exchange-traded weather derivatives contract. RAINMUMBAI was developed in collaboration with IIT Bombay and is anchored in official data from the India Meteorological Department (IMD).

RAINCHNNAI will allow participants to manage rainfall-linked risk through a transparent, standardised and cash-settled futures contract.

“With RAINMUMBAI, we gave India its first regulated tool to manage monsoon uncertainty, driven by southwest monsoon from June-September. RAINCHNNAI takes that framework to the retreating Northeast Monsoon, September-December which primarily impacts southern India, bringing nearly 70% of Chennai’s annual rainfall in just four months,” said Kedar Deshpande, Chief Business Officer, NCDEX.

“Together with RAINMUMBAI, it completes a monsoon risk management cycle that runs from June through December, covering both of India’s major monsoon systems,” he added.

The RAINCHNNAI contract is based on a 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. The model is benchmarked against decades of IMD data.

Inside NCDEX’s RAINCHNNAI contract

RAINCHNNAI is a futures contract with Chennai as its basis and CDR from LPA as the underlying. The contract months are September, October, November and December, covering the Northeast Monsoon rainfall regime.

The contract has a tick size of 1 mm and a lot multiplier of Rs 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 based on the underlying CDR spot value arrived at on the due day or expiry day of the contract.

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How RAINCHNNAI calculates rainfall deviation

NCDEX said 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, the weather derivatives are settled purely on observed data, eliminating the need for loss assessment, according to the exchange. NCDEX said this enables faster settlement cycles and greater operational efficiency for participants.

The exchange said RAINCHNNAI and RAINMUMBAI together 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.

“RAINCHNNAI and RAINMUMBAI, together completes India’s complete rainfall risk management ecosystem and building a new asset class for India’s climate economy,” NCDEX said.

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