CFTC Staff Expands No-Action Relief for Stablecoin Margin Collateral

The CFTC’s Market Participants Division reissued and revised a staff no-action letter addressing the acceptance by a futures commission merchant ("FCM") of payment stablecoins and other non-security digital assets as collateral for customer positions.

As revised by CFTC Letter 26-05, CFTC Staff Letter 25-40 expands the definition of "payment stablecoin" to include stablecoins issued by a national trust bank as a permitted issuer.

The revised letter provides that the Division will not recommend that the CFTC take enforcement action against an FCM that takes into account the value of payment stablecoins, and other eligible non-securities digital assets, when determining whether a customer account is properly margined and when performing required segregation calculations, subject to specified conditions. The relief also permits an FCM to deposit its own proprietary payment stablecoins into segregated customer accounts to satisfy residual interest requirements, again subject to conditions.

Under the terms of the relief, the FCM must apply specified haircuts to the collateral value, including by using the applicable derivatives clearing organization ("DCO") valuation and haircut methodology where the digital asset is accepted by a DCO. For digital assets not accepted as collateral by a DCO or qualifying foreign clearing organization, the FCM must apply haircuts pursuant to its risk management policies and procedures, including a haircut of at least 20 percent for non-securities digital assets other than payment stablecoins. For the first three months of reliance, under the new letter, the Division limits the FCM to accepting only payment stablecoins, Bitcoin, and Ether as margin collateral, and requires weekly reporting of digital assets held in customer accounts and prompt notice of significant operational disruptions or cybersecurity incidents affecting the use of such collateral.