The Commodity Futures Trading Commission (CFTC) has made an important recommendation to allow more use of digital technologies, like blockchain, to handle collateral in trading.
Collateral is basically a form of security or backup used in trading to protect both parties. The CFTC’s Global Markets Advisory Committee (GMAC) suggested using technology, such as distributed ledger technology (DLT), to handle these non-cash assets, making the process more efficient.
In simpler terms, the CFTC is looking at how technology can help people use things like digital government bonds or other assets as backup in trades.
This would make trading safer and more efficient, while also ensuring that current rules around collateral are still followed. Blockchain, which is a type of technology that keeps secure records, could help remove some of the difficulties in managing these assets, like the risk of fraud or delays.
The GMAC was set up to give advice to the CFTC on issues that impact the fairness and competitiveness of U.S. markets, especially for businesses that operate globally. This includes dealing with rules and challenges in a world where markets are more connected and businesses work across borders.
The GMAC also offers suggestions for international rules on trading futures, swaps, options, and other financial contracts, as well as how companies that help with these trades should be regulated.
The CFTC has been allowing the use of non-cash assets as collateral for some time but has faced challenges with how to manage them. The GMAC’s recommendation is to use new technology to make these operations easier and more reliable without changing the rules for what can be used as collateral.
The Commissioner of GMAC, Caroline D. Pham, highlighted successful examples worldwide of using digital technology to manage assets, such as digital government bonds in Europe and Asia.
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She also noted transactions worth over $1.5 trillion in financial deals on blockchain platforms and more efficient methods to manage collateral and finances. These achievements demonstrate how technology can enhance the system.
She noted that now the U.S. is starting to make progress in creating clear rules for digital assets, following the GMAC’s recommendation to use tokenized non-cash collateral.
This is an important step for the U.S. financial markets, ensuring they can take advantage of these opportunities while keeping the same rules and protections in place. Adopting new technology doesn’t mean giving up on fairness or market security.
The Commissioner is also excited about the progress being made with utility tokens and the efforts to create clear regulations for these important assets, which will drive innovation and growth in the digital economy. She praised the leadership of the GMAC and its efforts to make U.S. markets more competitive.
