ISDA urged the FASB to adopt a broad-based Secured Overnight Financing Rate ("SOFR") swap rate for hedge accounting.
In a letter to the Financial Accounting Standards Board ("FASB"), ISDA responded to the FASB proposal to allow the Overnight Index Swap ("OIS") rate based on the SOFR to be used as a U.S. benchmark interest rate for hedge accounting. While supportive of the FASB decision to transition away from LIBOR, ISDA recommended that the FASB use a broad-based SOFR swap rate that will cover "various tenors, including an overnight rate." ISDA noted that a broad-based rate will provide greater flexibility for the market to develop a replacement for LIBOR, adding, "upon different tenors being quoted for swaps, the rates would immediately meet the definition of [the proposed] SOFR Swap Rate and thus be an eligible benchmark rate for hedging purposes."
The FASB proposed to introduce the OIS rate based on SOFR during the "early stages of the market place transition" in order to provide more time for entities to change their interest rate risk hedging strategies for risk management and hedge accounting.
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