ISDA’s Accounting Committee supports the Financial Accounting Standards Board’s (FASB) actions to add the secured overnight funding rate (SOFR) as an eligible US benchmark interest rate for hedge accounting purposes under Topic 815. Our members, as active market participants, acknowledge the importance of facilitating a smooth market transition away from LIBOR to the replacement rate selected by the Alternative Reference Rate Committee (ARRC), in line with the goals of the Financial Stability Oversight Council and the Financial Stability Board.
Given that the overnight indexed swap (OIS) rate is based on daily observations of SOFR (an overnight borrowing rate), we believe the benchmark rate that the FASB should consider adding is a broad-based SOFR swap rate, similar to the LIBOR swap rate, which would cover various tenors, including an overnight rate. A broad-based SOFR swap rate would provide the market with greater flexibility to develop longer interest rate tenors referencing SOFR, without the need for the FASB to add another benchmark interest rate to the Accounting Standards Codification or to modify the SOFR OIS rate definition to include longer tenors.
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Documents (1) for ISDA Responds to the FASB’s Proposal on SOFR
ISDA Responds to FASB on Exposure Draft
Accounting for Digital Assets: Key Considerations
Response to IASB Post Implementation Review