SOFR swap basis could pose ‘systemic risk’
Trading curbs must be loosened to prevent tripling of unhedgeable basis risk, says senior banker
The ban on interdealer trading of term SOFR derivatives is causing prices to deviate sharply from instruments linked to the compounded-in-arrears version of the rate – an anomaly that, if left unchecked, could pose a systemic risk to swap dealers, a senior market risk manager has warned.
“I think regulators are starting to acknowledge that if there isn’t some means of trading this type of risk in the [interdealer] market, it will start becoming a systemic risk across institutions in terms of
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