CFTC Clarifies U.S. Treasury ETFs as Eligible Margin Collateral for Uncleared Swaps

The Commodity Futures Trading Commission's (CFTC) Market Participants Division has issued a regulatory interpretation clarifying the eligibility of U.S. Treasury exchange-traded funds (UST ETFs) as margin collateral for uncleared swap transactions. The staff interpretation addresses CFTC Regulation 23.156, which sets forth the asset classes that covered swap entities may post or collect as initial margin (IM) and variation margin (VM) for uncleared swaps. The existing rule specifies that eligible IM collateral includes redeemable securities in a pooled investment fund, focusing on assets that remain liquid and retain their value during market stress. Under the newly issued guidance, the division clarified that shares of certain UST ETFs may be considered redeemable securities in a pooled investment fund, thereby qualifying as eligible collateral under the parameters of Regulation 23.156. Consequently, swap dealers are permitted to post and collect qualifying UST ETF shares as initial margin in transactions with any covered counterparty. Furthermore, swap dealers may utilize these ETF shares as variation margin for uncleared swap transactions with financial end users, provided all regulatory conditions are met. The regulatory interpretation follows recommendations submitted to the agency by the CFTC's Global Markets Advisory Committee, which were developed by its Global Market Structure Subcommittee to improve market liquidity and operational efficiency across derivatives markets.