CFTC staff outlined expectations for crypto collateral, including capital charges for Bitcoin and Ether, as part of a pilot program launched last year.
The U.S. Commodity Futures Trading Commission (CFTC) has issued new guidance on its pilot program allowing cryptocurrencies to serve as collateral in derivatives markets. In a notice released on Friday, CFTC staff responded to frequently asked questions based on two staff letters from December, clarifying how futures commission merchants can participate.
Futures commission merchants must file a notice with the CFTC's Market Participants Division before accepting crypto assets as margin collateral, specifying the start date for participation. This pilot aligns with efforts to integrate crypto into traditional financial systems, emphasizing compliance with regulatory standards.
CFTC Guidance on Crypto Assets and Capital Charges
The CFTC specified capital charges for different cryptocurrencies to manage risks. Positions in Bitcoin (BTC) and Ether (ETH) require a 20% capital charge, while stablecoins face a 2% charge, ensuring consistency with Securities and Exchange Commission guidelines.
For the first three months of the pilot, only Bitcoin, Ether, or stablecoins can be accepted as collateral. Participants must submit weekly reports on the total crypto held across customer account types and promptly report any significant cybersecurity or system issues.
After the initial three-month period, futures commission merchants may accept other cryptocurrencies as collateral, at which point the weekly reporting requirements will end. However, the CFTC restricts the use of crypto and stablecoins for collateral in uncleared swaps.
Derivatives clearing organizations can accept crypto assets as initial margin for cleared transactions, provided they meet CFTC requirements for minimal credit, market, and liquidity risks. Additionally, only proprietary payment stablecoins may be deposited as residual interest in customer segregated accounts, and other cryptocurrencies cannot be used for that purpose.
Swap dealers are allowed to use tokenized versions of eligible assets as collateral for certain transactions, but only if the tokens grant the same rights as their traditional forms and comply with regulatory requirements. This guidance reflects ongoing collaboration between the CFTC and the SEC to establish a unified regulatory framework for crypto assets in financial markets.
