CFTC Helps Seeded Funds and Qualifies More Money Market Funds as Margin

Background

CFTC regulations governing uncleared swaps (the “CFTC Margin Rules”) require covered swap entities (“CSEs”) (i.e., swap dealers and major swap participants not subject to prudential regulator margin rules) to exchange collateral as IM and VM with certain counterparties for uncleared swaps.¹

Following the initial adoption of the CFTC Margin Rules in 2016,² various challenges were identified and considered by market participants, including the disparate treatment among certain categories of seeded funds subjecting many seeded funds to initial margin obligations, the broad ineligibility of shares of MMFs and similar funds that may engage in repurchase and certain similar transactions to be posted as IM or VM for uncleared swaps, and a lack of a specific haircut schedule for shares of MMFs and similar funds posted as IM or VM.³

In August 2023, the CFTC proposed to amend CFTC Regulation 23.151 and 23.156 to exempt CSEs from the requirement to exchange IM with certain seeded funds, to eliminate the asset transfer restriction, and to add a footnote to the haircut schedule set forth in CFTC Regulation 23.156 that specifically addressed the haircut schedule for MMFs and similar funds (the “Proposal”).⁴

On July 13, 2026, the CFTC adopted a final rule (the “Final Rule”) amending the CFTC Margin Rules effective August 17, 2026 as follows:⁵

• Seeded Fund Amendment. The Seeded Fund Amendment relieves swap dealers and major swap participants subject to the CFTC’s uncleared swaps margin rules from the requirement to post and collect initial margin with certain eligible seeded funds for a period of up to three years from the date on which the eligible seeded fund’s asset manager begins making investments on behalf of the fund.
• Eligible Collateral Amendment. The Eligible Collateral Amendment eliminates the asset transfer restriction that had previously disqualified shares of otherwise eligible MMFs or other similar funds from serving as IM and VM.
• Haircut Schedule Amendment. The Haircut Schedule Amendment specifies specific tiered haircuts for shares of MMFs and similar funds used as IM or VM.

As described further below, the Final Rule amends only the CFTC Margin Rules. The prudential regulators (i.e., the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the Federal Housing Finance Agency) have not yet taken equivalent action with respect to their uncleared swap margin rules.

The Seeded Fund Amendment

An entity has MSE when, together with its “margin affiliates,” it has an AANA of uncleared swaps, security-based swaps and deliverable foreign exchange forwards and swaps that exceeds $8 billion over a prescribed period.⁶ Because consolidation of entities for AANA calculations is based on consolidation for accounting purposes, seeded funds are generally consolidated with their sponsor group for and thus constitute a “margin affiliate” of the sponsor.⁷ In turn, sponsors may be consolidated for accounting purposes with parent companies like swap dealers that have large AANA. Because of that consolidation, seeded funds, which often have very little of their own uncleared swap exposure, have nevertheless been required under the CFTC Margin Rules to post IM because they have been effectively “credited” with the AANA of swap dealer parent companies that can have trillions of dollars of AANA.

Because posting IM under the CFTC and Prudential Regulator rules involves posting the IM to a tri-party collateral control account, needing to post IM involves the negotiation of several additional agreements and putting in place of “pipes” for the movement of IM. This process can be incredibly burdensome, especially for a fund in the start-up phase. In addition, this aggregation requirement has created significant practical challenges for seeded funds. Many seeded funds face legal restrictions, such as fiduciary duties or regulatory information barriers, that prevented them from sharing uncleared swap exposure data with their sponsor affiliates on a real-time basis. Those restrictions effectively barred seeded funds from accessing the uncleared swaps markets or forced fund sponsors to structure seeded funds offshore to avoid the CFTC Margin Rules.

The Final Rule adds a new “eligible seeded fund” definition to the regulations. As amended, CFTC Regulation 23.151 defines “eligible seeded fund” as a collective investment vehicle that has received a part of all of its start-up capital from a parent and/or affiliate (each, a “sponsor entity”) where:

• The seeded fund is a distinct legal entity from each sponsor entity.
• The seeded fund’s asset manager manages the fund’s assets pursuant to an agreement that requires the seeded fund’s assets to be managed in accordance with a specified written investment strategy.
• The seeded fund’s asset manager has independence in carrying out its management responsibilities and exercising its investment discretion, and, to the extent applicable, has independent fiduciary duties to the fund and other investors in the fund, such that no sponsor entity or any of the sponsor entity’s margin affiliates, except for the fund’s own asset manager acting in the exercise of its management responsibilities, controls or has transparency into the management or trading of the seeded fund.
• The seeded fund’s obligations are not collateralized, guaranteed, or otherwise supported by any sponsor entity, any margin affiliate of a sponsor entity, other collective investment vehicle, or the seeded fund’s asset manager.
• The seeded fund has not received any of its assets, directly or indirectly, from another eligible seeded fund that itself relied on the exception.
• The seeded fund is not a securitization vehicle.

The Final Rule also adds a new “eligible seeded fund exception” to the definition of “margin affiliate.” Under the Final Rule, a collective investment vehicle meeting the definition of an eligible seeded fund is deemed (i) to have no margin affiliates and (ii) not to constitute a margin affiliate of any other entity when calculating IM-related thresholds. This treatment is effective for a period of up to three years from the date the vehicle begins to make investments. As a result, the Final Rule provides relief from the otherwise applicable IM requirements for a seeded fund’s start-up period.⁸

Elimination of the Asset Transfer Restriction

Under the CFTC Margin Rules as initially adopted, otherwise eligible MMF and other similar funds’ shares were eligible to serve as IM or VM for certain uncleared swaps transactions only if the fund’s assets may not be transferred through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, or similar arrangements.⁹ In practice, most large institutional MMFs (particularly government MMFs that invest in U.S. Treasury securities and are more likely than other MMFs to meet the other eligibility requirements) engage in repurchase transactions as cash lenders and their shares therefore could not qualify as eligible collateral under the prior CFTC Margin Rules despite being recognized as highly liquid, low-risk instruments.

These conditions have generally limited the scope of eligible fund shares to shares of mutual funds and ETFs¹⁰ that invest only in Treasury securities and that are restricted from engaging in any repurchase or similar agreements. Based on data as of mid-2023, the asset transfer restriction limited the scope of funds whose shares were eligible to serve as IM or VM to approximately 21 MMFs (constituting approximately $649 billion in combined net assets).¹¹

The Final Rule eliminates the asset transfer restriction in its entirety, allowing otherwise eligible securities to serve as IM for uncleared swaps between a CSE and a covered counterparty or as VM for uncleared swaps between a CSE and a financial end user, regardless of whether the fund engages in repurchase or similar agreements. The Final Rule imposes no new conditions limiting the eligibility of MMF shares to serve as IM or VM.

The Haircut Schedule Amendment

CFTC Regulation 23.156(a)(3) subjects the value of any eligible collateral collected or posted to satisfy IM requirements to discounts in a standardized haircut schedule. CFTC Regulation 23.156(b)(2) subjects the value of any eligible collateral collected or posted to satisfy VM to discounts by reference to the same schedule.

The Final Rule adopts tiered fixed percentage haircuts based on (1) the fund’s maximum value-weighted average time to maturity based on the fund’s stated investment restrictions not exceeding a specific time period; or (2) the fund limiting its investments to securities with a specific remaining maturity not exceeding a specific time period. The haircuts are: 0.5% for under one year, 2% for one to five years, and 4% for greater than five years.¹² The CFTC stated in adopting the Final Rule that "shares of MMFs that meet the IM eligibility requirements ... will be subject to a 0.5 percent haircut." This tiered approach mirrors the haircuts applicable to direct holdings of the same underlying sovereign securities and reduces the operational burden on market participants. A CSE may rely on a fund’s prospectus or other offering documents to determine the applicable limits on value-weighted average time to maturity or remaining maturities and corresponding haircut tier applicable to shares of the fund.

The Proposal would have imposed a requirement that a CSE compute a monthly weighted-average discount that would apply to all assets within an eligible fund and apply such discount to the fund’s shares posted as collateral.¹³ That approach would have aligned with corresponding requirements of the prudential regulators. However, ICI and SIFMA AMG argued in their April 2026 supplemental comment letter that the Proposal’s weighted-average haircut methodology was unworkable because fund managers do not publish portfolio composition information on a sufficiently timely basis for counterparties to perform the necessary calculations and for other reasons.¹⁴

Significance and Broader Context

The Final Rule amends the CFTC Margin Rules to address challenges that seeded funds and market participants using MMF collateral have faced under the existing margin framework. In the words of CFTC Chairman Michael S. Selig, the Final Rule “unlock[s] liquidity for capital allocators and expand[s] the types of assets that qualify as eligible collateral for certain derivatives transactions, striking the right balance between streamlining regulation and upholding the market protections and robust risk management standards that make America’s commodities markets the gold standard.”¹⁵

For seeded funds, the amendment aligns the CFTC Margin Rules with the BCBS/IOSCO framework¹⁶ and the margin rules of the EU, UK, Canada, Japan, and Australia, all of which already treat investment funds as distinct entities for threshold calculation purposes. U.S.-based fund sponsors will no longer face an incentive to structure new funds offshore, and seeded funds will have broader access to the uncleared derivatives markets.

For buy- and sell-side participants who seek to use MMF and similar fund shares as collateral for uncleared swaps, the elimination of the asset transfer restriction and the adoption of practical tiered haircuts expand the eligible collateral pool and reduce operational burdens. The change also expands the use cases fund sponsors will be able to consider in structuring and launching such funds. The change also aligns the CFTC Margin Rules with CFTC Regulation 1.25,¹⁷ which already permits futures commission merchants to invest customer funds in MMF shares without any equivalent restriction.

The Final Rule amends only the CFTC Margin Rules, which are only applicable to CSEs that are not subject to prudential regulator margin rules. The prudential regulators have not yet taken equivalent action with respect to their uncleared swap margin rules, which apply to CSEs that are banks and bank affiliates.¹⁸ Until the prudential regulators act, market participants transacting with both CFTC-regulated and prudentially regulated CSEs will face different collateral eligibility rules depending on the relevant counterparty.

Market participants should also consider the interplay between these amendments and the ongoing Treasury clearing mandate, which has the effect of requiring repurchase transactions in Treasury securities with any direct participant of a covered clearing agency providing central counterparty services for U.S. Treasury securities to be submitted for clearing by June 30, 2027. The Final Rule’s elimination of the Asset Transfer Restriction removes a potential friction point that could have discouraged MMFs from engaging in cleared Treasury repo as implementation of the clearing mandate continues.