Global Digital Finance (GDF) and ISDA have published a report concluding that tokenized money market funds (TMMFs) can work as institutional collateral in the United States under all three of the main tokenization models. The collateral mobility working group involved more than 300 participants from over 120 firms, including BlackRock, Citi, JP Morgan and Franklin Templeton, as well as two of the major derivatives clearing groups, CME and ICE. Forty eight firms took part in sandbox simulations run by Ownera. The report follows a similar assessment of the UK and EU published last year.
The analysis found the models fit within existing legal and regulatory frameworks across ten legal and regulatory dimensions, with two exceptions. Money market funds are not eligible as variation margin for cleared derivatives, which is cash only. And the SEC has issued no guidance on tokenized securities for uncleared initial margin, so the report assumes they are treated the same as conventional securities.
The work lands on the back of a run of US regulatory clarifications. The CFTC issued tokenized collateral guidance in December, the SEC stated in January that tokenization does not change how securities laws apply, and SEC staff FAQs confirmed that a transfer agent may use a blockchain as the official shareholder record.
The report’s most useful contribution is a clean taxonomy. What separates the three models is which record of ownership is legally authoritative.
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