CFTC Pushes For Wider Use Of Non-Cash Collateral In Trading
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The Commodity Futures Trading Commission (CFTC) has shared that it supports using distributed ledger technology (DLT) to manage trading collateral in U.S. derivatives markets, according to a report from the CFTC’s Global Markets Advisory Committee.
Commissioner of CFTC, Caroline Pham, explained that tokenizing assets has already worked well in other parts of the world. These include digital government bonds in Europe and Asia, over $1.5 trillion in blockchain-based transactions for repos and payments, and better ways to manage collateral and treasury.
Traders Use Collateral, Or Margin, To Hold Trades Until Done
Pham added that the committee’s new recommendation on tokenized non-cash collateral is a big step for U.S. derivatives markets. She said the new technology could be used without losing market safety and fairness.
According to the report, blockchain, such as distributed ledgers and tokenization, can solve old problems in traditional derivatives exchanges and open up more assets for collateral trades. Blockchain systems can allow assets to be moved anytime without costly middlemen and let people trade assets directly with others without brokers. Traders often need to post collateral, or margin, to back their trades until they finish.
The CFTC oversees markets for trading futures and options and has a key role in U.S. cryptocurrency markets. Per reports, President-elect Donald Trump, who wants the U.S. to lead in crypto, is considering picking a crypto-friendly leader for the CFTC after he starts his term in January 2025.
Under President Joe Biden, the CFTC and the Securities and Exchange Commission (SEC) have been tough on crypto, taking action against many companies. Summer Mersinger, a Republican CFTC commissioner who supports a softer approach to crypto, is one possible choice for the new CFTC chair.
Regulators And Platforms Are Starting To Accept Tokenized Assets For Trades
Commissioner Pham has also backed crypto-friendly views and earlier criticized the CFTC for charging the Uniswap platform with running an unregistered derivatives exchange.
The SEC is also preparing for leadership changes. On Nov. 21, SEC Chairman Gary Gensler, who has been strict on crypto, said he plans to leave his role in January 2025.
Before these changes, some signs already showed regulators and platforms were accepting tokenized assets for trades. In September, the Depository Trust and Clearing Corporation tested using tokenized U.S. Treasury bills for collateral.
The CFTC has also been active in stopping market manipulation. On Aug. 27, the CFTC fined TOTSA TotalEnergies Trading $48 million for manipulating the gasoline market. Ian McGinley, the CFTC’s enforcement director, said the agency has worked for years to protect markets by uncovering such schemes.
