Derivatives trading company CME Group says it is piloting the use of distributed ledger for wholesale payments and tokenization, using Google Cloud’s Universal Ledger, a new permissioned DLT offering. So far it has completed the first phase of testing with plans to involve clients later in the year. It is eyeing a launch in 2026.
“As the President and new Administration have encouraged Congress to create landmark legislation for common-sense market structure, we are pleased to partner with Google Cloud to enable innovative solutions for low-cost, digital transfer of value,” said Terry Duffy, CME Group Chairman and CEO. “Google Cloud Universal Ledger has the potential to deliver significant efficiencies for collateral, margin, settlement and fee payments as the world moves toward 24/7 trading.”
Tokenized collateral?
While the announcement is thin on detail, an area that is attracting considerable attention in traditional finance is the tokenization of collateral, particularly the use of tokenized collateral for margin purposes. Last month the CME’s regulator, the Commodity Futures Trading Commission (CFTC), announced plans for tokenization pilots. It also discussed using stablecoins. It follows a CFTC digital asset subcommittee working group that explored the ins and outs of tokenizing collateral.
In Europe, the German regulator BaFin recently gave the green light to use digital collateral for margin purposes at Eurex Clearing, a subsidiary of the Deutsche Börse. JP Morgan will be the first to try it.
Providing more flexible collateral options could mitigate market risks.
One oft-quoted example is the UK’s Gilts crisis in 2022. The new Chancellor’s budget caused market panic resulting in rapid swings in interest rate swaps used by life insurance firms and crashing prices of government bonds. The life insurers had to sell gilts to raise cash for margin calls, creating a downward price spiral for gilts, until the central bank stepped in. If it had been possible to use tokenized gilts, these securities could have been instantly transferred to meet the margin calls, without the need to sell the gilts.
Meanwhile, the other notable aspect of the announcement is Google Cloud’s new Universal Ledger, with details somewhat thin on the ground. It simply said it was a private permissioned distributed ledger that “”simplifies the management of accounts and assets.” There’s no mention of the product on its website so far.
