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SEC staff has given Franklin Templeton’s registered funds a path to invest in the firm’s blockchain-based U.S. government money market fund for cash management under a new custody arrangement.
The August 12 no-action letter covers U.S.-registered open-end and closed-end funds advised by Franklin Templeton-controlled managers. The funds may use the Franklin On-Chain U.S. Government Money Fund for cash balances and securities-lending collateral if they satisfy specified custody and oversight conditions.
Franklin Funds Can Use FOBXX for Cash and Collateral
The Franklin On-Chain U.S. Government Money Fund, ticker FOBXX, invests at least 99.5% of its assets in U.S. government securities, cash and fully collateralized repurchase agreements. One BENJI token represents one fund share.
Franklin told SEC staff that FOBXX offers features unavailable through its current cash-management vehicle, including hourly net asset value calculations, intraday trading and faster transaction processing.
Stellar Custody Structure Avoids Physical-Vault Requirements
The issue centered on Rule 17f-2 provisions designed around physical or certificated securities kept in a vault.
FOBXX instead uses an integrated system combining FTIS’s internal book-entry records with blockchain transaction records. For each investing fund, Franklin Templeton Investor Services will establish a separate Stellar wallet and maintain its private key.
FTIS also controls administrative functions that allow it to correct unauthorized transactions, freeze or migrate wallet records and restore the official ownership record if necessary.
SEC staff said it would not recommend enforcement over noncompliance with Rule 17f-2(b), (e) and (f) if Franklin follows 12 conditions, including board oversight, segregated records, confirmations, daily reconciliation and at least three independent accountant verifications each fiscal year.
No-Action Letter Does Not Change Securities Law
The relief does not exempt FOBXX from securities regulation or establish a general rule for tokenized funds.
SEC staff said its position applies only to Franklin’s stated facts and representations. The letter is not a Commission rule or legal conclusion and has no independent legal force or effect.
Franklin funds can use the custody structure for FOBXX investments once the required controls and approvals are satisfied, creating a regulated route for an on-chain money market fund to enter affiliated funds’ routine cash-management operations.
