The U.S. Commodity Futures Trading Commission (CFTC) is quietly laying the groundwork for a new market structure where U.S. Treasury bonds and cryptocurrencies can coexist.
On December 12, 2023, the CFTC approved the expansion of cross-margining for U.S. Treasury bonds.
The impact of the new CFTC order on the crypto market.
This change allows certain clients, not just clearing members, to offset margin requirements between Treasury bond Futures Contract traded and settled at CME Group. CME Group is one of the largest crypto Derivative exchanges in the US.
In addition, the new policy also applies to Treasury bonds that are cash-settled at the Depository Trust and Clearing Corporation , through the Fixed Income Clearing Corporation.
“Expanding cross-margining to clients will help increase Capital efficiency, thereby boosting liquidation and enhancing the sustainability of the U.S. Treasury bond market – the world’s most important market,” said Acting Chair of the CFTC Caroline Pham.
Cross-margining allows firms to reduce their total margin assets by offsetting positions with shared risk within the same portfolio. Extending this function from market makers' balance sheets to end customers in the Treasury bond market is also a significant structural change.
Many experts view this as a practical test for risk management models. These frameworks could potentially support portfolios containing treasury bonds, Tokenize funds, and crypto assets within the same clearing system in the future.
With crypto Derivative products now listed on CME, this move could bring about significant changes in the market.
If cross-margining with treasury bonds and bond Futures Contract can be widely applied, similar governance frameworks will also be extended to more complex portfolios. These could include Token treasury bonds, spot Bitcoin positions backing Bitcoin and ETH Futures Contract on the CME – all managed by a unified risk management and margin system.
Furthermore, the timing of this decision is also part of a broader effort to regulate crypto that is currently being pursued by both the CFTC and the U.S. Securities and Exchange Commission (SEC) .
This new policy also reflects alignment with the SEC's project to reform the structure and processes of payments and transactions, as regulators XEM integrating Tokenize assets and digitally secured assets into the traditional custody and payment framework.
Notably, the committee headed by Ms. Pham recently launched a pilot program on digital collateral. This initiative allows the use of Bitcoin, Ethereum, and USDC as collateral in Derivative markets regulated by the CFTC.
These moves indicate that regulators are focusing heavily on Capital efficiency and risk control across a range of asset classes, as the lines between traditional and digital markets become increasingly blurred.
