# CFTC Letter No. 25-11: UST ETFs that fall within the scope of the regulatory framework set forth in SEC Rule 6c-11 may qualify as eligible IM collateral as defined in the CFTC Margin Rule, provided the funds meet the criteria listed in Comm..

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/CFTC_L25_11

## Section

- **Citation:** CFTC Letter No. 25-11
- **Heading:** UST ETFs that fall within the scope of the regulatory framework set forth in SEC Rule 6c-11 may qualify as eligible IM collateral as defined in the CFTC Margin Rule, provided the funds meet the criteria listed in Comm..
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** CFTC Staff Letters (2008-present) / UST ETFs that fall within the scope of the regulatory framework set forth in SEC Rule 6c-11 may qualify as eligible IM collateral as defined in the CFTC Margin Rule, provided the funds meet the criteria listed in Comm...

## Text

Summary: UST ETFs that fall within the scope of the regulatory framework set forth in SEC Rule 6c-11 may qualify as eligible IM collateral as defined in the CFTC Margin Rule, provided the funds meet the criteria listed in Commission Regulation 23.156(a)(1)(ix). CSEs may collect or post UST ETFs that qualify as IM under Commission Regulation 23.156(a)(1)(ix) as VM for uncleared swap transactions with financial end users consistent with Commission Regulation 23.156(b)(1)(ii).

CFTC Letter No. 25-11 Interpretative April 14, 2025

Market Participants

Thomas J. Smith
Division

Acting Director

Re:
Staff Interpretation Regarding Exchange-Traded Funds as Eligible Margin
Collateral for Uncleared Swaps Transactions

The Market Participants Division (“Division”) of the Commodity Futures Trading
Commission (“Commission” or “CFTC”) is issuing this interpretation to clarify the types of assets
that qualify as eligible margin collateral for certain uncleared swap transactions under Commission
Regulation 23.156.1 Specifically, the interpretation clarifies the Division’s view that swap dealers
(“SDs”) and major swap participants (“MSPs”) may post and collect with counterparties certain
U.S. Treasury exchange-traded funds (“UST ETFs”) as initial margin (“IM”) and variation margin
(“VM”) for uncleared swap transactions as specified below.
Regulatory Background
Section 4s(e) of the Commodity Exchange Act (“CEA”)2 requires the Commission to adopt
rules establishing minimum IM and VM requirements for all swaps3 that are: (i) entered into by
an SD4 or an MSP5 for which there is no prudential regulator6 (collectively, “covered swap entities”

1 17 CFR 23.156. The Commission’s regulations may be found at 17 CFR Chapter I, and are also available through
the Commission’s website, www.cftc.gov.
2 7 U.S.C. 6s(e).
3 CEA section 1a(47), 7 U.S.C
s establishing minimum IM and VM requirements for all swaps3 that are: (i) entered into by
an SD4 or an MSP5 for which there is no prudential regulator6 (collectively, “covered swap entities”

1 17 CFR 23.156. The Commission’s regulations may be found at 17 CFR Chapter I, and are also available through
the Commission’s website, www.cftc.gov.
2 7 U.S.C. 6s(e).
3 CEA section 1a(47), 7 U.S.C. 1a(47) (swap definition); Commission Regulation 1.3, 17 CFR 1.3 (further definition
of a swap). A swap includes, among other things, an interest rate swap, commodity swap, credit default swap, and
currency swap.
4 CEA section 1a(49), 7 U.S.C. 1a(49) (swap dealer definition); Commission Regulation 1.3 (further definition of swap
dealer).
5  CEA section 1a(32), 7 U.S.C. 1a(32) (major swap participant definition); Commission Regulation 1.3 (further
definition of major swap participant).
6 CEA section 1a(39), 7 U.S.C. 1a(39) (defining the term “prudential regulator” to include the Board of Governors of
the Federal Reserve System; the Office of the Comptroller of the Currency; the Federal Deposit Insurance Corporation;
the Farm Credit Administration; and the Federal Housing Finance Agency). The definition of “prudential regulator”
further specifies the entities for which these agencies act as prudential regulators. The prudential regulators published
final margin requirements in November 2015. See generally Margin and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015) (“Prudential Regulators Margin Rule”). The Prudential Regulators Margin
Rule is substantially similar to the CFTC Margin Rule.

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21 st Street, NW, Washington, DC 20581
Telephone: (202) 418 - 5000
www.cftc.gov

CFTC Logo
n and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015) (“Prudential Regulators Margin Rule”). The Prudential Regulators Margin
Rule is substantially similar to the CFTC Margin Rule.

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21 st Street, NW, Washington, DC 20581
Telephone: (202) 418 - 5000
www.cftc.gov

CFTC Logo

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 2

or “CSEs”);7 and (ii) not cleared by a registered derivatives clearing organization (“uncleared
swaps”).8 To offset the greater risk to the SD or MSP and the financial system arising from the
use of uncleared swaps, these requirements must: (i) help ensure the safety and soundness of the
SD or MSP; and (ii) be appropriate for the risk associated with the uncleared swaps held by the SD
or MSP.9
In 2016, the Commission promulgated Commission Regulations 23.150 through 23.161
(“CFTC Margin Rule”) to implement section 4s(e) of the CEA.10 The CFTC Margin Rule provides
that the margin requirements may be satisfied with only certain types of collateral.11 Commission
Regulation 23.156(a)(1) sets forth the types of collateral that CSEs can post or collect as IM with
covered counterparties, including cash funds, certain securities issued by the U.S. government or
other sovereign entities, certain publicly traded debt or equity securities, securities issued by certain
pooled investment funds such as money market funds meeting specified conditions, and gold.12
Furthermore, Commission Regulation 23.156(b)(1) provides that a CSE may post or collect any
eligible IM collateral asset as VM with a counterparty that qualifies as a financial end user and
may only post or collect cash funds as VM with a counterparty that is an SD or MSP.13
Commission Regulation 23.156(a) aims to identify as eligible margin collateral assets that
are liquid, and, with haircuts, will hold their value in times of financial stress.14 In adopting the
CFTC Margi
ct any
eligible IM collateral asset as VM with a counterparty that qualifies as a financial end user and
may only post or collect cash funds as VM with a counterparty that is an SD or MSP.13
Commission Regulation 23.156(a) aims to identify as eligible margin collateral assets that
are liquid, and, with haircuts, will hold their value in times of financial stress.14 In adopting the
CFTC Margin Rule, the Commission added “redeemable securities in a pooled investment fund”
to the list of eligible IM collateral in response to comments arguing for the inclusion of money
market fund (“MMF”) securities as eligible collateral for IM.15 The Commission explained that
adding redeemable securities in a pooled investment fund to the list of eligible collateral would
provide flexibility while maintaining a level of safety, noting that to qualify, such fund securities
would need to meet the conditions in Commission Regulation 23.156(a)(1)(ix).16
Commission Regulation 23.156(a)(1)(ix) limits the pooled investment funds whose
securities may qualify as eligible collateral to funds that invest only in securities issued or

7 CEA section 4s(e)(1)(B), 7 U.S.C. 6s(e)(1)(B). SDs and MSPs for which there is a prudential regulator must meet
the margin requirements for uncleared swaps established by the applicable prudential regulator. CEA section
4s(e)(1)(A), 7 U.S.C. 6s(e)(1)(A).
8 CEA section 4s(e)(2)(B)(ii), 7 U.S.C. 6s(e)(2)(B)(ii). In Commission Regulation 23.151, the Commission further
defined this statutory language to mean all swaps that are not cleared by a registered derivatives clearing organization
or a derivatives clearing organization that the Commission has exempted from registration as provided under the CEA.
17 CFR 23.151.
9 CEA section 4s(e)(3)(A), 7 U.S.C. 6s(e)(3)(A).
10 See generally Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 (Jan. 6, 2016) (adopting the CFTC Margin Rule)
red by a registered derivatives clearing organization
or a derivatives clearing organization that the Commission has exempted from registration as provided under the CEA.
17 CFR 23.151.
9 CEA section 4s(e)(3)(A), 7 U.S.C. 6s(e)(3)(A).
10 See generally Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 (Jan. 6, 2016) (adopting the CFTC Margin Rule). The CFTC Margin Rule became effective April 1, 2016 and is
codified in part 23 of the Commission’s regulations. 17 CFR 23.150-23.159, 23.161.
11 17 CFR 23.156.
12 17 CFR 23.156(a)(1).
13 17 CFR 23.156(b)(1). The term “financial end user” is defined in Commission Regulation 23.151 as a counterparty
that is not an SD or MSP and that is included in an enumerated list of financial institutions or funds including certain
banking entities, credit institutions, private funds, and securities brokers or dealers. 17 CFR 23.151.
14 CFTC Margin Rule, 81 FR 636 at 665. The haircuts are specified in Commission Regulation 23.156(a)(3) and vary
by asset class and residual maturity of the asset. 17 CFR 23.156(a)(3).
15 CFTC Margin Rule, 81 FR 636 at 666.
16 Id. and 17 CFR 23.156(a)(1)(ix).

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 3

unconditionally guaranteed by the U.S. Department of the Treasury, the European Central Bank or
certain other sovereign entities, and cash. 17 Eligible funds’ securities must be redeemable
securities representing the security-holder’s proportional interest in the fund’s net assets, issued
and redeemed only on the basis of the market value of the fund’s net assets prepared each business
day after the security-holder makes its investment commitment or redemption request to the fund.18
In adopting the requirements, the Commission noted that these criteria are similar to those used for
bank trust department common trust funds and common investment funds, to facilitate liquidity of
the redeemable securities while still protecting holders of the fund
assets prepared each business
day after the security-holder makes its investment commitment or redemption request to the fund.18
In adopting the requirements, the Commission noted that these criteria are similar to those used for
bank trust department common trust funds and common investment funds, to facilitate liquidity of
the redeemable securities while still protecting holders of the fund’s securities from dilution.19
Commission Regulation 23.156(a)(1)(ix) also provides that assets of the fund may not be
transferred through securities lending, securities borrowing, reverse repurchase agreements, or
similar arrangements.20
Market Participants Feedback
On March 6, 2024, the CFTC’s Global Markets Advisory Committee’s (“GMAC”)
Subcommittee on Global Market Structure (“GMAC Subcommittee”) 21 issued a report
recommending that the Commission provide clarity on whether certain UST ETFs would qualify
as eligible IM collateral under the CFTC Margin Rule (“GMAC Recommendation”). 22
Specifically, the GMAC Subcommittee recommended that the Commission specify that shares of
a UST ETF that is registered as an open-end investment company with the U.S. Securities and
Exchange Commission (“SEC”) under the Investment Company Act of 1940 (“40 Act”) should be
considered “redeemable securities” in a pooled investment fund and, therefore, shares of such a
UST ETF that meets other relevant conditions, as detailed in the CFTC Margin Rule, would be
considered eligible IM collateral under the CFTC Margin Rule.23
In support of its recommendation, the GMAC Subcommittee notes that UST ETFs provide
a diversified exposure to a portfolio of U.S. Treasury securities in a single instrument, which can
help mitigate the idiosyncratic risk associated with an individual bond. 24 The GMAC
Recommendation also describes the ETFs’ unique mechanism for issuing and redeeming shares
and highlights the additional liquidity of ETFs resulting from secondary market trading.25 The

17 17 CFR 23.156(a)(1)(ix)(A) and (B)
xposure to a portfolio of U.S. Treasury securities in a single instrument, which can
help mitigate the idiosyncratic risk associated with an individual bond. 24 The GMAC
Recommendation also describes the ETFs’ unique mechanism for issuing and redeeming shares
and highlights the additional liquidity of ETFs resulting from secondary market trading.25 The

17 17 CFR 23.156(a)(1)(ix)(A) and (B).
18 17 CFR 23.156(a)(1)(ix).
19 Id.
20 17 CFR 23.156(a)(1)(ix)(C).
21 The GMAC advises the Commission on issues that affect the integrity and competitiveness of U.S. markets and U.S.
firms engaged in global business. The GMAC also makes recommendations regarding international standards for
regulating futures, swaps, options, and derivatives markets, as well as intermediaries. Members include financial
market infrastructures, market participants, end-users, service providers, and regulators.
22 Inclusion of U.S. Treasury ETFs as Eligible Margin Collateral, March 6, 2024, CFTC GMAC Global Market
Structure Subcommittee Recommendation, available at https://www.cftc.gov/About/AdvisoryCommittees/GMAC.
23 GMAC Recommendation at 1.
24 Id.
25 Id. (noting that fixed income ETFs, including UST ETFs, empower investors to gain instant access to hundreds of
bond market exposures at transparent prices and extra layers of liquidity from secondary, on-exchange trading).

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 4

GMAC Subcommittee further argues that in historic periods of volatility, certain UST ETFs have
acted globally as “shock absorbers,” providing real-time prices and liquidity.26
The GMAC Subcommittee also asserts that allowing UST ETFs as margin collateral could
increase the efficiency of the collateral management process. In that regard, the GMAC
Subcommittee notes that for a significant number of market participants or CSEs, it may be simpler
and more cost-effective to post shares of UST ETFs as eligible collateral, rather than posting U.S
prices and liquidity.26
The GMAC Subcommittee also asserts that allowing UST ETFs as margin collateral could
increase the efficiency of the collateral management process. In that regard, the GMAC
Subcommittee notes that for a significant number of market participants or CSEs, it may be simpler
and more cost-effective to post shares of UST ETFs as eligible collateral, rather than posting U.S.
Treasury securities directly. The Subcommittee further notes that the ongoing management of cash
flows in UST ETFs is performed by the ETF itself, including reinvestment, rebalancing, and
performing collateral substitutions when a bond matures, offering operational ease relative to
holding individual bonds.
In conclusion, the GMAC Subcommittee argues that allowing UST ETFs as IM collateral
could not only help safeguard CSEs from counterparty default but could also help reduce the
overall risk in the financial system and limit the potential for financial contagion arising from
uncleared swaps.
Staff Interpretation
ETFs, including UST ETFs, are collective investment vehicles that issue and redeem shares,
which are also traded at market-determined prices on national securities exchanges.27 In 2019,
the SEC adopted Rule 6c-11 under the 40 Act, creating a regulatory framework that allows ETFs
meeting certain requirements to operate as investment companies under the 40 Act without having
to obtain an exemptive order from the SEC as previously required.28
As described in the SEC ETFs Release, an ETF, like other investment companies, pools the
assets of multiple investors and invests those assets according to a set investment objective and
principal investment strategies.29 Each share of an ETF represents an undivided fractional interest
in the underlying assets of the ETF.30 As an open-end investment company,31 similar to a mutual
fund,32 an ETF continuously offers its shares for sale
F, like other investment companies, pools the
assets of multiple investors and invests those assets according to a set investment objective and
principal investment strategies.29 Each share of an ETF represents an undivided fractional interest
in the underlying assets of the ETF.30 As an open-end investment company,31 similar to a mutual
fund,32 an ETF continuously offers its shares for sale. Unlike mutual funds, however, ETFs do not

26 GMAC Recommendation at 1 (stating that “during the bond market volatility in 2020, volatility increased in U.S.
Treasury bonds as dealers’ balance sheets were constrained. During this time, many UST ETFs traded at tighter bid-
ask spreads than their portfolio of underlying bonds. For example, dislocations in U.S. Treasuries caused the bid/ask
spreads of “off-the-run” bonds with a maturity of 20+ years to widen to almost 20 times that of the iShares 20+ Year
Treasury Bond ETF (TLT)”).
27 See generally Mutual Funds and Exchange-Traded Funds (ETFs) – A Guide for Investors, SEC, available at
https://www.sec.gov/about/reports-publications/investor-publications/introduction-mutual-funds.
28 Exchange-Traded Funds, 84 FR 57162 (Oct. 24, 2019) (“SEC ETFs Release”).
29 Id. at 57164.
30 Id.
31  An “open-end company” is defined as a “management company which is offering for sale or has outstanding any
redeemable security of which it is the issuer.” 15 U.S.C. 80a-5. Some ETFs may also be structured as unit-investment
trusts (e.g., SPDR® S&P 500® ETF Trust and SPDR® Dow Jones Industrial Average ETF Trust), which have
characteristics of both open-end and closed-end companies. 15 U.S.C. 80a-4 (defining unit investment trusts); Unit
Investment Trusts (UITs), Glossary, available at https://www.investor.gov/introduction-investing/investing-
basics/glossary/unit-investment-trusts-uits. The regulatory framework set forth by SEC Rule 6c-11, however, applies
only to ETFs that are organized as open-end investment companies. 17 CFR 270.6c-11
en-end and closed-end companies. 15 U.S.C. 80a-4 (defining unit investment trusts); Unit
Investment Trusts (UITs), Glossary, available at https://www.investor.gov/introduction-investing/investing-
basics/glossary/unit-investment-trusts-uits. The regulatory framework set forth by SEC Rule 6c-11, however, applies
only to ETFs that are organized as open-end investment companies. 17 CFR 270.6c-11.
32 A “mutual fund” is a type of open-end investment company, meaning that investors can purchase and redeem shares
in the fund on a continuous basis at the net asset value (“NAV”) of the shares. See generally Mutual Funds and

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 5

sell shares to, or redeem shares from, investors directly. Instead, ETFs issue (and redeem) shares
to (and from) “authorized participants”—market intermediaries that have a contractual
arrangement with the ETF (or its distributor) and are members or participants of a clearing agency
registered with the SEC—in blocks called “creation units.”33
Authorized participants play a key role for ETF shares as they are the only investors that
are allowed to transact directly with the ETF.34 An authorized participant that purchases a creation
unit of ETF shares directly from the ETF deposits with the ETF a “basket” of securities and other
assets identified by the ETF that day, and then receives the creation unit of ETF shares in return
for those assets.35 The basket is generally representative of the ETF’s portfolio and, together with
a cash balancing amount, is equal in value to the aggregate NAV of the ETF shares in the creation
unit.36 The redemption process is the reverse of the purchase process: the authorized participant
redeems a creation unit of ETF shares for a basket of securities and other assets.37
In addition, ETF shares are traded on securities exchanges at market-determined prices
rtfolio and, together with
a cash balancing amount, is equal in value to the aggregate NAV of the ETF shares in the creation
unit.36 The redemption process is the reverse of the purchase process: the authorized participant
redeems a creation unit of ETF shares for a basket of securities and other assets.37
In addition, ETF shares are traded on securities exchanges at market-determined prices.
The combination of the creation and redemption process with secondary market trading in ETF
shares provides arbitrage opportunities that are designed to help keep the market price of ETF
shares at or close to the NAV per share of the ETF.38
In adopting the regulatory framework in Rule 6c-11, the SEC determined that shares of
ETFs that rely on Rule 6c-11 are most appropriately classified as “redeemable securities,” within
the meaning of section 2(a)(32) of the 40 Act.39 The SEC explained that although individual ETF
shares cannot be redeemed, except in limited circumstances, they can be redeemed in creation unit
aggregations.40 In addition, the SEC noted that the arbitrage mechanism that is central to the
operation of an ETF (and the conditions in SEC Rule 6c-11 designed to facilitate an effective
arbitrage mechanism) serves to keep the market price of ETF shares at or close to the ETF’s NAV
per share, thus providing an opportunity for investors to sell their ETF shares at or close to the
ETF’s NAV.41

Exchange-Traded Funds (ETFs) – A Guide for Investors, SEC, available at https://www.sec.gov/about/reports-
publications/investor-publications/introduction-mutual-funds. Mutual funds pool the money of many investors to
purchase a range of securities and other assets to meet specified investment objectives. Id.
33 17 CFR 270.6c-11 (defining “exchange-traded fund”) and GMAC Recommendation at 3.
34 17 CFR 270.6c-11 (defining “authorized participant”).
35 SEC ETFs Release at 57165.
36 Id.
37 Id.
38 Id
ations/investor-publications/introduction-mutual-funds. Mutual funds pool the money of many investors to
purchase a range of securities and other assets to meet specified investment objectives. Id.
33 17 CFR 270.6c-11 (defining “exchange-traded fund”) and GMAC Recommendation at 3.
34 17 CFR 270.6c-11 (defining “authorized participant”).
35 SEC ETFs Release at 57165.
36 Id.
37 Id.
38 Id. To describe the arbitrage mechanism, the SEC explains that if ETF shares are trading on national securities
exchanges at a ‘‘discount’’ (a price below the NAV per share of the ETF), an authorized participant can purchase ETF
shares in secondary market transactions and, after accumulating enough shares to compose a creation unit, redeem
them from the ETF in exchange for the more valuable securities in the ETF’s redemption basket. The authorized
participant’s purchase of an ETF’s shares on the secondary market, combined with the sale of the ETF’s basket assets,
may create upward pressure on the price of the ETF shares, downward pressure on the price of the basket assets, or
both, bringing the market price of ETF shares and the value of the ETF’s portfolio holdings closer together.
Alternatively, if ETF shares are trading at a ‘‘premium’’ (a price above the NAV per share of the ETF), the transactions
in the arbitrage process are reversed and, when arbitrage is working effectively, keep the market price of the ETF’s
shares close to its NAV. Id.
39 17 CFR 270.6c-11 and SEC ETFs Release at 57171.
40 SEC ETFs Release at 57171.
41 Id.
portfolio holdings closer together.
Alternatively, if ETF shares are trading at a ‘‘premium’’ (a price above the NAV per share of the ETF), the transactions
in the arbitrage process are reversed and, when arbitrage is working effectively, keep the market price of the ETF’s
shares close to its NAV. Id.
39 17 CFR 270.6c-11 and SEC ETFs Release at 57171.
40 SEC ETFs Release at 57171.
41 Id.

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 6

When it adopted the CFTC Margin Rule, the Commission did not define the term
“redeemable security” for purposes of Commission Regulation 23.156(a)(1)(ix). For ETFs that
fall within the scope of SEC Rule 6c-11, the Division, consistent with the SEC’s determination,
believes that shares issued by ETFs are “redeemable securities.” In addition, having considered
the liquidity characteristics of UST ETFs, the Division notes that allowing UST ETFs that meet
certain requirements to be used as IM collateral is consistent with the Commission’s intent to
identify as eligible collateral assets that are liquid, and subject to haircuts, will maintain their value
in times of financial stress.42
The Division, therefore, considers that UST ETFs that fall within the scope of the regulatory
framework set forth in SEC Rule 6c-11 may qualify as eligible IM collateral as defined in the
CFTC Margin Rule, provided the funds meet the criteria listed in Commission Regulation
23.156(a)(1)(ix). For full clarity, eligible UST ETFs must: (i) issue and redeem ETF shares only
on the basis of the market value of the fund’s net assets prepared each business day after the
security-holder makes its investment commitment or redemption request to the fund; (ii) limit its
investments to securities that are issued by, or unconditionally guaranteed as to the timely payment
of principal and interest by, the U.S. Department of the Treasury, and immediately-available cash
funds denominated in U.S
market value of the fund’s net assets prepared each business day after the
security-holder makes its investment commitment or redemption request to the fund; (ii) limit its
investments to securities that are issued by, or unconditionally guaranteed as to the timely payment
of principal and interest by, the U.S. Department of the Treasury, and immediately-available cash
funds denominated in U.S. dollars; and (iii) refrain from transferring fund assets through securities
lending, securities borrowing, repurchase agreements, reverse repurchase agreements, or other
means that involve the fund having rights to acquire the same or similar assets from the transferee.
In addition, the Division believes that a CSE may collect or post UST ETFs that qualify as IM
under Commission Regulation 23.156(a)(1)(ix) as VM for uncleared swap transactions with
financial end users consistent with Commission Regulation 23.156(b)(1)(ii).
With respect to the applicable haircuts, Commission Regulation 23.156(a)(3) sets forth
percentage discounts to be applied to the value of eligible margin collateral, varying according to
asset class.43 The haircut requirements are intended to address the possibility that the value of non-
cash eligible collateral may decline between a counterparty’s default and the close out of such
counterparty’s swap positions by the CSE.44 To determine the haircut for shares of investment
funds qualifying as eligible margin collateral pursuant to Commission Regulation 23.156(a)(1)(ix),
CSEs may either calculate the weighted average discount on all assets within the funds at the end
of the prior month45 or use the haircut provided for the asset with longest residual maturity held by

42

GMAC
Meeting
Slides,
March
6,
2024,
at
7-9,
available
here:
https://www.cftc.gov/PressRoom/Events/opaeventgmac030624
collateral pursuant to Commission Regulation 23.156(a)(1)(ix),
CSEs may either calculate the weighted average discount on all assets within the funds at the end
of the prior month45 or use the haircut provided for the asset with longest residual maturity held by

42

GMAC
Meeting
Slides,
March
6,
2024,
at
7-9,
available
here:
https://www.cftc.gov/PressRoom/Events/opaeventgmac030624.
43 17 CFR 23.156(a)(3) (specifying the applicable haircuts for eligible collateral collected or posted to satisfy IM
requirements) and 17 CFR 23.156(b)(2) (specifying the applicable haircuts for eligible collateral collected or posted
to satisfy VM requirements).
44 CFTC Margin Rule, 81 FR 636 at 668.
45 This approach is consistent with the haircut requirements of the Prudential Regulators Margin Rule, with which the
Commission intended to align the CFTC Margin Rule. Prudential Regulators Margin Rule, 80 FR 74840 at 74910
and CFTC Margin Rule, 81 FR 636 at 668. The haircut schedule of the prudential regulators’ margin rule includes a
footnote, which was inadvertently omitted from the CFTC Margin Rule, providing that the discount to be applied to
an eligible investment fund is the weighted average discount on all assets within the eligible investment fund at the
end of the prior month. The footnote further specifies that the weights to be applied in the weighted average should
be calculated as a fraction of each fund’s total market value that is invested in each asset with a given discount amount.
As an example, an eligible investment fund that is comprised solely of $100 of 91-day Treasury bills and $100 of 3-
n the eligible investment fund at the
end of the prior month. The footnote further specifies that the weights to be applied in the weighted average should
be calculated as a fraction of each fund’s total market value that is invested in each asset with a given discount amount.
As an example, an eligible investment fund that is comprised solely of $100 of 91-day Treasury bills and $100 of 3-

RE: Eligible Collateral for Uncleared Swaps Transactions

Page 7

the fund (e.g., 4 percent if an UST ETF holds U.S. Treasury securities with a residual maturity
greater than five years).46 The percentage discount, as determined pursuant to either alternative, is
to be applied to the market value of the fund shares, in accordance with Commission Regulations
23.156(a)(3)(ii) and 23.156(b)(2)(ii).47
This interpretation represents the views of the Division only and does not necessarily
represent the views of the Commission. Questions regarding this interpretation may be directed to
Liliya Bozhanova, Associate Director, at lbozhanova@cftc.gov or Christine McKeveny, Attorney
Advisor, at cmckeveny@cftc.gov.

Sincerely,

Thomas J. Smith
Acting Director

year U.S. Treasury bonds would receive a discount of (100/200) * 0.5 + (100/200) * 2.0 = (0.5) * 0.5 + (0.5) * 2.0 =
1.25 percent. 80 FR 74840 at 74910.
46 The Division understands that the latter approach, while more conservative, may be more practical for market
participants. Market participants may apply this approach to both UST ETFs and U.S. government MMFs that meet
the conditions of Commission Regulation 23.156(a)(1)(ix).
47 17 CFR 23.156(a)(3)(ii) and 17 CFR 23.156(b)(2)(ii).

## Nearby sections

- [CFTC Letter No. 08-03 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of Eight Futures Contracts Based on Security Indices Derived from the Dow Jones STOXX 600 Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_03.md)
- [CFTC Letter No. 08-05 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the RDXxt USD-RDX Extended Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_05.md)
- [CFTC Letter No. 08-11 Euronext Paris SAs request for no-action relief in connection with the offer and sale in the United States of its futures contracts based on the FTSE EPRA/NAREIT Europe Index and the FTSE EPRA/NAREIT Euro Zone Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_11.md)
- [CFTC Letter No. 08-13 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contracts Based on the SLI Swiss Leader Index, the Swiss Market Index Midcap, the Dow Jones Eur...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_13.md)
- [CFTC Letter No. 08-15 The Division of Clearing and Intermediary Oversight granted exemptive relief from certain of the Part 4 regulations to the registered CPO of a commodity pool, whose shares the CPO intended to publicly offer and to lis...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_15.md)
- [CFTC Letter No. 08-17 DCIO received a request for guidance from the Joint Audit Committee concerning FCM regulatory reporting requirements for investments in a money market mutual fund. The fund had announced that its net asset value per s...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_17.md)
- [CFTC Letter No. 08-18 The Division of Market Oversight issued a letter granting no-action relief to permit the Brazilian Derivatives Exchange, BM&F Bovespa S.A. – Bolsa de Valores, Mercadorias e Futuros (BM&F), to make its electronic tradi...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_18.md)
- [CFTC Letter No. 08-19 Thailand Futures Exchange Pcls Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the SET50 Index Futures Contract.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_19.md)
- [CFTC Letter No. 08-21 The Division of Market Oversight issued a no-action letter to BNP Paribas confirming that the Division will not recommend that the Commission initiate enforcement action against BNP Paribas or Fortis Bank S.A./N.V., o...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_21.md)
- [CFTC Letter No. 09-02 The Division of Clearing and Intermediary Oversight provided no-action relief to the general partner of a commodity pool from registering as a CPO under Section 4m(1) of the Commodity Exchange Act, and allowed an affi...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_02.md)
- [CFTC Letter No. 09-06 The CPO of a commodity pool requested that DCIO agree to accept the Annual Report for the period from January 1, 2008 through October 31, 2008 as the Pool’s final annual report despite the fact that the Pool had not f...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_06.md)
- [CFTC Letter No. 09-07 The CPO of a commodity pool with a de minimus amount of its assets embroiled in a bankruptcy requested relief from the ongoing reporting requirements under Part 4. The CPO filed an Annual Report for the Pool for the 2...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_07.md)
- [CFTC Letter No. 09-11 The CPO of two commodity pools requested relief to use IFRS in lieu of US GAAP. DCIO granted relief pursuant to Commission Regulations 140.93 and 4.12(a).](https://www.frixlaw.com/law-library/statutes/CFTC_L09_11.md)
- [CFTC Letter No. 09-13 The CPO of commodity pool requested relief to use IFRS in lieu of US GAAP. DCIO granted relief pursuant to Commission Regulations 140.93 and 4.12(a).](https://www.frixlaw.com/law-library/statutes/CFTC_L09_13.md)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/CFTC_L25_11. Check the current official text before relying on it. Not legal advice.