GMAC adopts recommendation to allow tokenized noncash collateral using distributed ledger technology

The Commodity Futures Trading Commission's Global Markets Advisory Committee on Wednesday adopted a recommendation from its digital-asset market subcommittee to expand the use of non-cash collateral through distributed ledger technology and will submit the recommendation to the Commission for consideration.

The recommendation, presented by Thomas Sullivan of Societe Generale and Allison Parent of GFMA, says a CFTC registrant using DLT solely for internal books-and-records should be able to rely on its existing information-security, operational and supervisory processes. It also says registrants accepting eligible non-cash collateral in tokenized form should apply their existing policies and procedures in areas including legal enforceability, segregation and custody arrangements, credit and custodial risk, and operational risk. The subcommittee added that these uses need not alter the fundamental character of the underlying asset and therefore would not, in the subcommittee's view, require new rule changes or formal guidance to permit tokenized forms of already-eligible non-cash collateral.

Why it matters: The recommendations are intended to address operational frictions that slow or complicate transfers of collateral across intermediaries and time zones. Presenters and supportive members said tokenization could improve the speed, mobility and 24/7 availability of collateral transfers, potentially reducing the need for fire sales in stressed markets and improving liquidity management across derivatives markets.

Details of the recommendation: The subcommittee described two DLT use cases: (1) using DLT as a books-and-records layer while maintaining custody obligations for underlying instruments, and (2) tokenization in which ownership rights are conferred and transferred on a ledger. Examples of assets discussed as potentially includable (but not limited to) were government debt securities, multilateral development bank securities, corporate debt, money market funds and gold. The paper emphasizes that registrants should assess and manage cyber, operational and compliance risks using their existing toolkits.

Commissioner Pam Fam, the GMAC sponsor, framed the recommendation as building on prior GMAC work on margin and collateral that the agency has already proposed or adopted in part. "Good policy is hard work," Fam said in opening remarks, adding that the committee's recommendations are meant to be practical inputs for regulators.

Concerns and clarifications: Some participants urged caution. One panelist urged against strict tech neutrality and argued for incentives to speed settlement, including potential use of stablecoins for variation-margin settlement. In response to questions about default or bankruptcy scenarios, presenters said the draft recommendation addresses legal recourse and that the subcommittee has a separate workstream examining bankruptcy mechanics and related best practices.

Vote and next steps: The GMAC moved and seconded the recommendation and the designated federal officer conducted a hand-raise tally: 27 yes, 0 no, 4 abstentions. The motion carried; the adopted recommendation will be submitted to the CFTC Commission for consideration. The Commission has not yet acted on the recommendation and any change in regulatory practice would depend on Commission action or staff guidance.

The committee's presentation and vote represent an advisory body's view; the recommendation does not itself change CFTC rules.