ISDA Asks Market to Weigh Collateral Annex Changes for TMMF Shares

ISDA identified provisions in its 2016 English and New York law variation margin annexes that could be amended so parties can post tokenized money market fund ("TMMF") shares as collateral, and asked for market feedback.

In a paper, the association said that posting traditional fund shares requires redeeming them, posting cash, and reinvesting it, then reversing the steps on return. TMMFs could be posted directly, with near-instant settlement outside market hours. But TMMFs vary, and the legal transfer mechanism depends on each fund's structure.

The association said several existing terms fit poorly: (i) "Transfer" does not expressly cover distributed ledger entries, and its book-entry limb may not reach funds whose issuer or transfer agent keeps the register. ISDA suggested amending that limb or adding a fourth. (ii) Daily pass-through of fund dividends could be burdensome and ISDA floated treating them like interest, or holding them as collateral until they exceed the minimum transfer amount. (iii) "Local business day" could add a limb for ledger-based settlement.

Parties would also need new elections, such as one on which assets count as tokenized securities.

Parties might also set eligibility conditions, including permitted blockchains, fund types, tokenization structures, concentration limits, and know-your-customer requirements.

ISDA asked for feedback on (i) where standardized amendments or clarifications could be made, (ii) the preferred format, such as a standardized supplement for a specifically structured TMMF, and (iii) the implementation timeline. It also asked what other matters it could convene the market on. Feedback goes to ISDALegal@isda.org.

The paper is not a final statement on standardized documentation for TMMFs and does not address commercial appetite, regulatory treatment, or the enforceability of tokenization structures. It covers only U.S. and UK law and sets out no specific amending language.