Asset tokenization is rapidly becoming an important bridge between traditional finance and technology. Recently, the U.S. Commodity Futures Trading Commission (CFTC) approved a proposal that allows the use of technology (including distributed ledgers and tokenization) to manage non-cash collateral in the U.S. derivatives market, opening a new chapter for financial innovation.
GMAC Proposes a Legal Framework for Tokenized Collateral
The proposal was put forward by the GMAC, the largest advisory committee under the CFTC, with the aim of expanding the use of non-cash collateral through the use of distributed ledger technology. GMAC member Caroline D. Pham stated:
Around the world, asset tokenization has successful and proven commercial use cases, such as digital government bond issuances in Europe and Asia, over $1.5 trillion in notional volume of institutional repo and payment transactions on platforms, and more efficient collateral and financial management.
Commissioner Pham further pointed out that the GMAC's proposal for tokenized non-cash collateral today represents progress in the U.S. regulation of digital assets, marking an important first step for the derivatives market to seize new opportunities, while maintaining existing market safeguards and protections. She emphasized:
Embracing new technology does not mean compromising market integrity.
The GMAC's proposal provides a legal and regulatory framework to guide market participants on how to apply existing policies and processes to support distributed ledger technology in managing non-cash collateral, while ensuring these operations comply with current margin requirements.
Blockchain Can Solve Challenges in Traditional Derivatives Transactions
The GMAC stated that the CFTC has long allowed the use of non-cash assets as collateral, subject to specific conditions and limitations, to meet regulatory margin requirements for cleared and uncleared derivatives, in order to mitigate credit, market, and liquidity risks. However, various operational challenges in practice have limited the application of non-cash collateral, negatively impacting market efficiency.
By utilizing or other distributed ledger technologies, the operational processes of assets that already meet margin requirements can be improved, reducing or resolving these challenges, without the need to modify the eligibility rules for collateral.
Specifically, the GMAC's report points out that networks can facilitate the real-time, 24/7 transfer of collateral without the need to establish expensive and complex links between multiple intermediaries, meaning that traders can conduct peer-to-peer transfers, or pledge assets without going through brokers.
DTCC Has Precedents
In fact, as early as September, the Depository Trust & Clearing Corporation (DTCC) had already completed a pilot project exploring the use of tokenized U.S. Treasuries as transaction collateral, indicating that tokenized assets are gradually gaining attention from U.S. financial institutions.
Now, the CFTC's approval further paves the way for the legitimate application of tokenized collateral. This not only accelerates the deep integration of technology and traditional finance, but also indicates that the U.S. is embracing the future of digital assets with a more proactive attitude.
