The Commodity Futures Trading Commission (CFTC) is quietly preparing a market structure where U.S. government securities and cryptocurrencies can coexist in the future.
On December 12, the CFTC approved an expansion of cross-margining for U.S. government securities.
How the CFTC's new decision affects crypto
This change allows certain customers, not just clearing members, to offset margin requirements between futures contracts on government securities cleared by CME Group. CME Group is one of the largest platforms for trading crypto derivatives in the U.S.
The new rule also applies to cash-based government securities that are cleared at the Depository Trust and Clearing Corporation Fixed Income Clearing Corporation.
"Extending cross-margining to customers provides capital efficiency that can enhance liquidity and resilience in U.S. government securities, the world's most important market," said Caroline Pham, acting chair of the CFTC, in a statement.
Cross-margining allows firms to reduce the total collateral requirement by netting related positions within a portfolio. Providing this opportunity to end customers in government securities signifies a major change in market structure.
Market participants see it as a practical test of risk models. These models could in the future support portfolios that include government bonds, tokenized funds, and crypto assets in a common clearing system.
For crypto derivatives traded on CME, the rules could have a significant impact on the market.
If government bonds and government bond futures can be cross-margined on a large scale, similar systems in the future could support even more complex portfolios. Such portfolios could include tokenized government bonds and spot Bitcoin as collateral for positions in CME Bitcoin and ETH futures, all governed by common margin and risk controls.
At the same time, this rule is coming now, while authorities discuss new crypto regulations that both the CFTC and Securities and Exchange Commission (SEC) are collaborating on.
It also reminds of the SEC's work to change market structure and clarify how tokenized securities and digital assets can fit into the current system for settlement and custody.
It is worth mentioning that the commission with Pham recently presented a pilot project for digital securities capital. The initiative allows the use of Bitcoin, Ethereum, and USDC as margin on CFTC-regulated derivatives markets.
These initiatives show that authorities are focusing more on capital efficiency and risk management within asset classes that blur the line between traditional and digital markets.
