The Commodity Futures Trading Commission (CFTC), the US agency responsible for regulating derivatives markets, is increasingly exploring the role of digital assets and blockchain technology in modernising financial systems.

As part of these efforts, the CFTC’s global markets advisory committee (GMAC), supported by Commissioner Caroline D. Pham, has advanced a recommendation to broaden the use of non-cash collateral through distributed ledger technology (DLT).

The recommendation aims to improve the efficiency of financial transactions by incorporating blockchain or other distributed ledger technologies to streamline the use of non-cash collateral. The move comes in response to operational challenges that have hindered the broader application of such collateral in the US derivatives markets. By leveraging DLT, the CFTC hopes to reduce risks and enhance market efficiency, while maintaining existing regulatory safeguards.

Commissioner Pham highlighted the significance of the proposal, citing successful global examples of asset tokenisation, such as digital government bond issuances in Europe and Asia, and large volumes of institutional transactions powered by blockchain platforms.

She noted that adopting these technologies could significantly improve the efficiency and competitiveness of US markets, while preserving market integrity and investor protection.

Regulatory clarity

“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 $1.5trillion 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 tokenised non-cash collateral. This marks a significant first step toward realising 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.

“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. 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.”

Moving forward

The GMAC approved its recommendation without objection, marking a key step in advancing regulatory clarity for digital assets in the US. This recommendation is the 14th the GMAC has submitted to the CFTC in the past 12 months, setting a record for the committee.

As part of the CFTC’s broader mission to ensure US markets remain resilient and competitive in a global context, the GMAC also plans to provide further critical insights and recommendations on fintech and digital asset regulation.