US CFTC Clarifies Cryptocurrency Collateral Pilot Rules: Capital Requirements of 20% for Bitcoin and Ethereum, 2% for Stablecoins

Techub News reports that the U.S. Commodity Futures Trading Commission (CFTC) has provided more details on its expectations regarding the use of cryptocurrencies as collateral. In a notice released on Friday, the CFTC’s Market Participants Division and Clearing and Risk Division responded to common questions raised in two staff letters issued last December. The previously issued letters established a pilot program allowing the use of cryptocurrencies as collateral in the derivatives market. The notice reminds futures commission merchants (FCMs) interested in participating in the pilot that they must submit a notice to the Market Participants Division, “including the date they will begin accepting client crypto assets as margin collateral.” The CFTC states that capital requirements (i.e., the amount that must be held to cover losses) will be “aligned with the SEC,” with FCMs applying a 20% capital requirement for Bitcoin and Ethereum positions, and a 2% requirement for stablecoins.

The notice further states that FCMs participating in the pilot can only accept Bitcoin, Ethereum, or stablecoins as collateral during the first three months, and must promptly report any significant cybersecurity or system issues. Additionally, they are required to submit weekly reports on the total amount of cryptocurrencies held in client accounts. After three months, other cryptocurrencies may be accepted as collateral, and reporting requirements will be terminated.

The notice also clarifies that “only proprietary payment stablecoins may be deposited into client segregation accounts as residual equity,” and FCMs are not permitted to accept other cryptocurrencies for this purpose. Furthermore, the CFTC indicates that cryptocurrencies and stablecoins cannot be used as collateral for uncleared swaps, but swap dealers may use tokenized versions of qualified assets, provided they meet regulatory requirements and grant holders rights equivalent to those in their traditional form. Meanwhile, derivatives clearing organizations can accept cryptocurrencies and stablecoins as initial margin for cleared trades, provided they meet the CFTC’s requirements regarding minimum credit, market, and liquidity risks.