CFTC Clarifies Crypto Collateral Rules

The CFTC has published a FAQ about the use of crypto assets as collateral, clarifying aspects of its digital asset margin collateral framework it published at the end of last year.

In its December guidance, the regulator said that FCMs can apply the value of non-security crypto assets including payment stablecoins, deposited by clients as margin to secure debit or deficit account balances, as long as a haircut is applied. 

The clarifications specify that FCMs applying a 2% haircut to payment stablecoin positions will not elicit a negative reaction from the regulator, making the previously unspecified “applicable capital charge” figure more concrete. The CFTC cited the SEC’s treatment for proprietary positions for broker dealers, noting that this would harmonise rules across the two regulators. For Bitcoin and ether, the FAQ reiterated a minimum capital charge of 20% for proprietary positions consistent with the rules for some customer account positions.

The FAQ also confirmed that swap dealers can’t use crypto assets, including payment stablecoins, as collateral for uncleared swaps, but it said tokenised forms of eligible collateral may be exchanged as long as they meet regulatory requirements.

Derivatives clearing organisations (DCOs), meanwhile, may accept crypto assets as initial margin for cleared transactions if they meet minimum requirements for credit, market and liquidity risks. They must apply a haircut, however and review them on a monthly basis.