This week the Commodity Futures Trading Commission (CFTC) finalized a rule change for margin for uncleared swaps, which expands the range of money market funds (MMFs) that can be used as initial margin. MMFs were already eligible as collateral, provided they only invested in cash and government securities. However, the CFTC excluded MMFs that used reverse repo, repo and securities lending. The rule change drops that restriction, expanding the range of MMFs eligible as collateral for uncleared swaps. Given that interest rate swaps and FX swaps dominate market activity of OTC derivatives, this impacts a large part of the market.
Many government MMFs under SEC Rule 2a-7 use reverse repo, which involves them lending cash in exchange for receiving government securities as collateral. The final rule cites Office of Financial Research data showing US MMFs’ participation in Treasury repo transactions at around $1.7 trillion as of October 2025. Reverse repo is considered to be relatively low risk. If the cash borrower goes bankrupt, the MMF keeps hold of the government securities. While many people may recall previous money market fund crises, these have mainly related to prime money market funds where the fund assets include investments in corporate or non government securities. Prime MMFs remain ineligible as collateral under the CFTC rule.
Notably, the Commission declined to attach any strings to the change. It rejected suggestions to cap the volume of repo activity, impose an additional haircut, or require that the funds’ repo transactions be centrally cleared, noting that the SEC’s Treasury clearing compliance date for repo has been pushed back to June 30, 2027.
There’s been much discussion about tokenized collateral being used for margin purposes, both uncleared margin and at central counterparties. Money market funds have been front and center in those discussions, with this rule greatly expanding the range of eligible MMFs for uncleared margin in the United States. However, eligibility for cleared margin is a different matter.
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