CFTC Paves Way for Tokenised Collateral for Swaps and Futures

The US Commodity Futures Trading Commission has launched a pilot programme that will see some digital assets, including bitcoin, ether and USDC become eligible for being used as collateral in derivatives markets. Acting chair Caroline Pham says the move is a step toward achieving the “Golden Age of Innovation and Crypto” in the US at the same time as withdrawing “outdated” requirements following the approval of the Genius Act.

The CFTC’s Market Participants Division (MPD) issued new guidance that clarifies the regulators stance on using tokenised assets and collateral for swaps and futures. The guidance applies to tokenised real-world assets, including US Treasury securities and money market funds.

The pilot will aim to establish clear guardrails that protect customers and give regulators an enhanced ability around monitoring and reporting. As part of the project, the CFTC is set to provide regulatory clarity through tokenised collateral guidance for real world assets such as US Treasuries in a bid to “drive progress that will unleash US economic growth” as a result of dollars being put safely to work.

Topics will include what eligible tokenised assets mean, legal enforceability, segregation, custody and control arrangement, including haircuts and valuation as well as operational risks.

The CFTC also withdrew its advisory that placed some restrictions on an FCM’s ability to accept virtual currencies as customer collateral, reasoning that the Genius Act rendered the advisory outdated and no longer relevant. The MPD also issued a no-action position on some of the requirements applicable to FCMs that accept non-securities digital assets, including stablecoins for payments.

“The no-action position provides market participants with regulatory clarity regarding the application of the segregation and capital requirements to FCMs that accept these digital assets as margin collateral, while highlighting the importance of FCMs’ maintaining robust risk management practices,” the CFTC states. “By setting up a framework for registered FCMs to accept and take into account the value of non-securities digital asset customer margin collateral and deposit payment stablecoins as residual interest, the no-action letter establishes a pilot program that fosters responsible financial innovation while providing an opportunity for CFTC staff to closely monitor developments associated with non-securities digital asset collateral.”

In the first three months of the pilot, the digital assets that an FCM could accept as margin collateral will be limited to bitcoin, ether, and USDC. FCMs accepting tokenised collateral will also be required to provide weekly reporting of the total amount of digital assets held in customer accounts, listing each asset type separately for each of the three customer account classes, with an obligation to notify CFTC staff of any significant issue affecting the use of digital assets as customer margin collateral.

“The frequent reporting and notice requirements will provide an opportunity for CFTC staff to assess the proper application of FCM regulatory requirements without unnecessarily limiting the ability of FCMs to accept digital assets as collateral and deposit proprietary payment stablecoins as residual interest in customer accounts,” the CFTC says.