Three instruments, one framework — and one reissuance the models missed
The CFTC's December 2025 digital asset collateral package sits across three instruments. Staff Letter 25-40 set out the initial no-action position on bitcoin, ether, and certain stablecoins as acceptable collateral for futures commission merchants and derivatives clearing organisations. The accompanying tokenized asset staff guidance addressed how tokenized versions of traditional assets fit within the existing collateral framework. Then, in February 2026, Staff Letter 25-40 was reissued as Staff Letter 26-05, carrying technical clarifications on the haircut selection methodology.
Both models, web search on, treated 25-40 and 26-05 as two names for the same document. Their outputs treated 25-40 and 26-05 as alternative references to the same document, collapsing a two-step issuance sequence into a single event and, in doing so, rendering the February 2026 clarifications invisible.
The models couldn't name the right OCC instrument
The CFTC staff letters sit alongside OCC Interpretive Letter 1183, which addresses how national banks may hold cryptocurrency assets. When asked about the OCC instrument that contextualises the CFTC collateral guidance, both models either named a wrong letter number or produced a plausible-sounding OCC reference that does not exist in the OCC's published record.
Models produced OCC interpretive letter references that are either wrong or non-existent when asked to identify the OCC instrument contextualising the CFTC digital asset collateral guidance. OCC Interpretive Letter 1183 is the correct instrument.
The haircut methodology — and where the models went wrong
Staff Letter 26-05 includes a clarification on how haircuts for digital asset collateral should be selected where multiple scenarios are applicable: the worst-case haircut governs. This is a specific and consequential rule, the wrong haircut selection means under-collateralisation against the regulator's required buffer. Both models, when asked to describe the haircut selection methodology, produced outputs that either omitted the worst-case selection requirement entirely or softened it to a best-estimate basis.
Where the failure surface sits in production
The failure modes here, reissuance conflation, wrong instrument identification, and worst-case rule omission, surface when a model is used in FCM compliance workflows, risk function collateral management, or fintech product embedding. An FCM compliance officer who asks a frontier model about the current CFTC digital asset collateral position and receives output that misses the 26-05 reissuance is operating from an outdated regulatory picture. A product team embedding CFTC collateral logic that receives the wrong haircut selection rule is under-collateralising against the regulator's required buffer.
The tokenized asset staff guidance adds a further complexity layer: models asked about tokenized versions of traditional assets within the CFTC framework need to distinguish the tokenized-asset guidance from the digital-asset collateral guidance. The audit found this boundary to be another failure surface, with models conflating coverage conditions between the two instruments.
Full regulation hub: DIGITAL-ASSET-COLLATERAL-TOKENIZED-ASSETS-STAFF-GUIDANCE-2025 →
Hallucination Register: reglegbrief.com/hallucination-register/