The U.S. Commodity Futures Trading Commission (CFTC) supports the use of blockchain in managing collateral for the derivatives market, opening up potential for innovation and efficiency in trading.
According to a report on November 21 from the Global Markets Advisory Committee (GMAC) of the CFTC, the agency supports the use of blockchain technology for managing collateral in the derivatives market in the U.S. This move is seen as a positive signal for the development of blockchain technology in the financial sector and could usher in a new era of more efficient and transparent collateral management.
The CFTC, the agency responsible for regulating the commodity derivatives market, including futures and options trading, also plays a significant role in overseeing the cryptocurrency market in the U.S. The CFTC's support for blockchain technology is seen as a significant step, indicating recognition of the potential of this technology to improve the current financial system.
The potential of blockchain in managing collateral
The GMAC report emphasizes that blockchain technologies, including distributed ledgers and tokenization of assets, have the potential to address long-standing challenges faced by traditional derivatives exchanges while expanding the range of assets that can be used as collateral. Real-time collateral transfer, operating continuously 24/7 without the need for complex and costly intermediaries, is one of the standout benefits that blockchain offers.
CFTC Commissioner Caroline D. Pham stated, 'Globally, there have been successful and proven cases of tokenizing assets. Now, we can begin to push forward the process of clarifying regulations on digital assets in the U.S.' Ms. Pham emphasized the practical application potential of this technology and the need to establish a clear legal framework to support the development of the digital asset market.
Not only does blockchain enable quick and efficient collateral transfers, but it also supports peer-to-peer asset transfers. This allows asset owners to transfer or collateralize directly without going through brokers, reducing costs and increasing flexibility for market participants. In derivatives trading, margining is mandatory to ensure the trade until completion. Blockchain can simplify this process, helping to reduce risk and increase transparency.
The Depository Trust & Clearing Corporation is testing transaction settlements on a blockchain network. Source: DTCC
The support of the CFTC comes amid an impending leadership change at the agency. President-elect Donald Trump, who has committed to making the U.S. the 'crypto capital of the world', is considering appointing a crypto-friendly commissioner to lead the CFTC when he takes office on January 20, 2025.
This indicates a potential shift in the U.S. cryptocurrency regulatory policy, from a tough stance under President Joe Biden to a more open and supportive environment. Under President Biden, both the SEC and CFTC adopted a stringent regulatory stance towards the cryptocurrency industry, conducting hundreds of lawsuits against companies in this sector.
This change is also reflected in the announcement that SEC Chairman Gary Gensler, known for his tough stance on cryptocurrencies, will step down on January 20, 2025. Potential candidates for the CFTC chair position include Republican Commissioner Summer Mersinger and Commissioner Caroline D. Pham, both known for their pro-crypto views.
The trend of accepting tokenized assets as collateral is becoming increasingly clear, even before personnel changes. In September, the Depository Trust & Clearing Corporation (DTCC), the central clearinghouse for securities transactions in the U.S., completed a pilot program using tokenized U.S. Treasury bonds as collateral in trading.