Water, water markets

Water dashboards and market transparency

3 July 2019

In the last few months many government departments have published dashboard’s showing water trade data. Current dashboards available include;

Some parties claim that these dashboards underpin “market transparency”. While these dashboards provide users access to data in a visual format, there are still many shortcomings and they do very little for true market transparency.

Dashboard proliferation

The amount of duplication of effort between jurisdictions is quite amazing. Each state (and department) have decided to forge their own dashboard which, in the end, are 95% the same as each other state. How many person hours have been consumed creating them and are they actually being used?

Sure a dashboard makes it easier to interpret water trade data however to get a whole-of-basin understanding about the market you still need to extract and process the raw data.

This leads onto the second issue. There is no consistency between dashboards, each has its own unique interface. This makes it difficult to compare visualisations between jurisdictions – am I looking at apples or pears? Perhaps tangerines?

The most important thing to remember – all data available through the dashboards is historic. The data is sourced from the state registers and shows what happened. It has little relevance to what is going on in the market now, today.

The process of trading water can take days in the case of allocation and months in the case of entitlement. By the time the transaction is recorded in the relevant register (and then displayed on a dashboard), the information is out of date. The BOM dashboard is even further behind because they need to collate the raw data from all the state registers (and even then it may be missing information from private irrigation corporations).

Because all the data is historic, these dashboards (and even the raw registry data) do little (nothing?) for market transparency.

Towards transparency

So what defines a transparent market? According to Wikipedia;

“…a market is transparent if much is known by many about: What products and services or capital assets are availablemarket depth (quantity available), what price, and where.”

That definition focuses on the supply side but transparency also applies to the demand side ie who wants how much volume by when and where. The combination of both sides provides all participants with equal knowledge and ability to transact.

Using the ASX* as an example, if I ask a group of people what the price of a BHP share is, they will all provide the same number. There is no need to go and search several web sites (which may or may not be up-to-date) or make a dozen phones calls to various brokers to work out the price. All buy and sell offers are visible through a single exchange – the ASX. Why should the water market be any different?

* An interesting aside – the ASX was formed by the amalgamation of 6 independent state-run stock exchanges in 1987

Obviously the equities market is a lot different to the water market. Both the exchanges (there are 4 stock exchanges in Australia) and the brokers (intermediaries) who operate on the exchange are regulated by Australian Securities and Investments Commission (ASIC). There is no regulation covering water trading in Australia aside from standard consumer law.

While the Australian Water Broker Association (AWBA) has a Code of Conduct, it is voluntary and there is no requirement for a person or company dealing in water to be a member of the AWBA. This means that even if someone contravenes the Code of Conduct, there is little that can be done to reprimand them.

There has been some attempt at creating a centralised, real-time view of the water market. Marsden Jacobs received over $1M in funding from the Federal government through Business Research and Innovation Initiative (BRII) funding to develop waterflow.io. This site aggregates (scrapes) listings from a few water broker web sites (including H2OX). While this is a move in the right direction, it still relies on broker bulletin boards being up-to-date, which is often not the case.

Water market transparency

While dashboards are a useful resource they provide a purely historical view of what happened in a market. They do not show what is happening in a given market and contribute very little (if anything) to transparency in the water market.

In order for the Australian water market to be truly transparent it needs to be regulated. Regulation won’t be easy however, if the industry isn’t proactive in working with the government to define and implement a workable solution, we will end up having a model forced on us.

The market also needs a central exchange so that market participants can be confident about depth and price. H2OX was established as an independent exchange. Our recent announcement of a flat, $2.20 per megalitre exchange fee for all allocation trades enforces our commitment to being a central, independent exchange. Many water market intermediaries (brokers) already use the H2OX exchange for their trades and this offer is extended to all brokers.

A centralised, independent exchange will result in greater transparency for both participants and intermediaries. It will reduce transaction costs, reduce settlement times and provide greater depth.