The use of tokenized assets as collateral for derivatives and securities financing transactions (SFTs) is emerging as a significant development in global capital markets. Financial institutions are increasingly evaluating tokenized representations of money market funds, government securities and other high-quality liquid assets to enhance collateral mobility, improve settlement efficiency and post-settlement workflows and optimize liquidity management. As market adoption advances, the focus is shifting from operational feasibility to the broader legal, regulatory, risk management and financial reporting implications of tokenized collateral.

This whitepaper analyzes potential gross versus net balance sheet presentation accounting considerations of derivatives and SFTs where certain tokenized financial assets are used as collateral under International Financial Reporting Standards accounting standards and US Generally Accepted Accounting Principles. The analysis considers traditional bilateral over-the-counter and centrally cleared structures, as well as emerging structures enabled by distributed ledger technology. The analysis is focused on individual product types, such as derivatives and SFTs, and does not address cross-product netting arrangements.

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