Yield-Bearing Collateral

In the common structure, the fund holds the tokenized instrument with an independent custodian or a bank acting as triparty agent. The exchange is granted a security interest, or a mirrored balance is credited to the trading account, and positions are margined against it. The instrument never sits on the exchange’s balance sheet. If the exchange fails, the collateral is with the custodian; if the fund’s position needs to be liquidated, the exchange can call on it under the program’s documented terms.

The instruments accepted are tokenized funds from large asset managers and regulated issuers, holding Treasury bills, repo and cash. They redeem daily or near-daily against the issuer, publish holdings, and are structured as securities available to qualified investors. Which ones a given venue accepts, and at what haircut, changes over time as programs expand.

Margin that was earning nothing now earns a short-duration Treasury yield, less the venue’s haircut and any program fee. For a market-neutral book that holds hedged positions continuously, the margin is a large and permanent share of deployed capital. Making it productive is a structural improvement to the mandate, not a new position.