The Commodity Future Trading Commission (CFTC), one of the major regulators of US trading markets, is recommending expansion of non-cash collateral.
In a statement, the regulator backed the use of distributed ledger technology (DLT) to support this non-cash collateral expansion, following a judgement by its Global Markets Advisory Committee (GMAC).
It adds that this recommendation provides a ‘legal and regulatory framework for how companies can apply existing policies, procedures, practices and processes to support DLT use for non-cash collateral.
The recommendation essentially serves as another endorsement of tokenisation by yet another major financial regulator. The CFTC is responsible for regulating US derivatives markets such as futures and swaps, and has been active in policing the blockchain and crypto sectors over recent years.
Caroline D. Pham, CFTC Commissioner, said: “All over the world, there have been successful and proven commercial use cases for tokenization of assets, such as digital government bond issuances in Europe and Asia, over $1.5trn notional volume in institutional repo and payments transactions on enterprise blockchain platforms, and more efficient collateral and treasury management.
“Now, we can finally begin to make progress on US regulatory clarity for digital assets with today’s GMAC recommendation on tokenized non-cash collateral. This marks a significant first step toward realizing these opportunities for our derivatives markets — with exactly the same guardrails and protections in place.
“Embracing new technology does not mean compromising on market integrity.”
Various banking and finance stakeholders voiced an interest in tokenization of late, including Citi, Standard Chartered and HSBC, to name a few. The CFTC is one of several national finance regulators to recommend or at least explore the potential of tokenisation and DLT.
For example, Project Guardian, an initiative to examine the fund and asset tokenisation, was launched earlier this month by the Monetary Authority of Singapore (MAS), and has received support from the likes of the UK Financial Conduct Authority (FCA).
As well as recommending the DLT-backed non-cash collateral, the CFTC’s GMAC has also detailed progress on its Utility Tokens workstream, which Pham further elaborated on.
“I’m also excited by the progress of the Utility Tokens workstream and their extensive efforts on a regulatory solution for these key assets which will help to unleash rapid innovation and growth in the digital economy,” Pham continued.
“I applaud the leadership of the GMAC and the Digital Asset Markets Subcommittee and workstreams for promoting the competitiveness of our markets and the United States.”
