Distributed ledger technology and digital assets have matured from their early stages to solutions capable of addressing longstanding inefficiencies in collateral management. Tokenized money market funds (TMMFs) represent a particularly promising area for the application of this technology, combining the liquidity, stability and regulatory familiarity of traditional money market funds (MMFs) with the programmability and operational efficiency of digital assets. These features have driven substantial interest in the use of shares in TMMFs as collateral for financial market transactions, and notably derivatives.

The purpose of this paper is to further facilitate the potential use of TMMFs in collateral arrangements by: (i) raising awareness of the particular issues that may need to be considered when taking or posting shares in TMMFs as collateral (depending on the structure of those TMMFs); (ii) highlighting which of those issues could potentially be dealt with through standardization, including potential amendments to, or supplements of, standard-form ISDA documentation; and (iii) otherwise outlining practical approaches that market participants may use to address party-specific considerations arising from the particular operational or legal features of tokenized assets.

This paper is not a final statement on tokenized assets under ISDA documentation.

ISDA welcomes feedback from market participants on the issues discussed in this paper, specifically, on:

1. The areas highlighted in Section 4 (Key Provisions of the ISDA Collateral Documentation), where standardized amendments or clarifications have been identified that could be made to ISDA collateral documentation to accommodate the posting of shares in TMMFs as collateral more efficiently;
2. The preferred format for any amendments to ISDA collateral documentation (for example, a standardized supplement to the ISDA collateral documentation for a TMMF structured in a specific way to implement the relevant amendments, or another format); and
3. The appropriate timeline for the implementation of any standardized amendments to the ISDA collateral documentation.

ISDA invites feedback on whether there are further matters on which ISDA could helpfully convene the market. Any feedback should be sent to ISDALegal@isda.org.

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