PRIMER: the Secured Overnight Financing Rate

September 06, 2018

Lary Stromfeld comments on the secured overnight financing rate (Sofr), a new lending reference rate established by the Federal Reserve Bank of New York.

An excerpt from “PRIMER: the Secured Overnight Financing Rate,” IFLR, September 6, 2018:

"The goal is to take an overnight rate and turn it into term periods. For example, if the overnight Sofr rate is x, what would the rate be if you were talking about a 3-month Sofr rate? That is something that is best determined again through trading activity," said Lary Stromfeld, partner at Cadwalader. "You need a futures market that can determine what the market believes a 3-month Sofr rate would be relative to the overnight rate, and that is what this is.”

“It begins to address one of the structural elements that needs to develop to make the overnight rate into something that is more of a term period," he added.

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