SOFR's 2022 Fail. Respect The Power Of Price

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United Kingdom Realtime Scientech
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SOFR's 2022 Fail. Respect The Power Of Price Introduction Financial market regulators will learn the limits of their power in 2022 when the secured overnight financing rate fails to generate adequate trading volume as it replaces LIBOR in futures market trading. The failure of SOFR will remind us that market prices, not ad hoc algorithms, best allocate financial resources. LIBOR was the market’s attempt at a single homogeneous measure of credit conditions in the short-term debt market. To make LIBOR replacement successful, market stewards – exchanges and related trade associations – should take the initiative. As a result, issued maturities of short-term corporate debt vary over time. To provide a continuous spot price consistent with futures trading as LIBOR did while improving on the stability and soundness of the LIBOR spot market, it would be desirable for market stewards through the exchange to manage the issuance and delivery of spot short-term debt in settlement of debt futures. It will be a challenge for market stewards to build a short-term credit market and debt instrument that represents the cost of money to private borrowers in real time.



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