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Franklin Templeton has received SEC staff relief that clears a custody obstacle for its U.S. registered funds to invest in the Franklin On-Chain U.S. Government Money Fund for cash management.
The August 12 no-action letter applies to open-end and closed-end investment companies in the Franklin Templeton fund family that use the specified custody arrangement. Franklin said the funds want the flexibility to invest cash balances and securities-lending collateral in the On-Chain Fund.
SEC Relief Covers Three Rule 17f-2 Custody Provisions
The SEC’s Division of Investment Management said it would not recommend enforcement action if Franklin Templeton Investor Services acts as custodian for the investments without complying with paragraphs (b), (e) and (f) of Rule 17f-2.
Those provisions were designed around physical or certificated securities and include requirements involving vault custody, transaction records and independent asset verification. The SEC staff found Franklin’s proposed book-entry and blockchain arrangement sufficiently similar to an earlier Franklin custody structure that received relief in 1992.
FTIS maintains the official shareholder record through an integrated system combining internal book-entry information with blockchain transaction records.
For participating Franklin funds, FTIS will create separate wallets on Stellar and secure the private keys. It also controls administrative functions that allow it to correct unauthorized transactions, freeze or migrate wallet records and restore the official ownership record if necessary.
FOBXX Held $753.24M in Assets at June 30
The Franklin On-Chain U.S. Government Money Fund launched in April 2021. Its ticker is FOBXX, while Franklin lists BENJI as the fund number.
The fund invests at least 99.5% of assets in U.S. government securities, cash and fully collateralized repurchase agreements. It reported $753.24 million in net assets at June 30 and maintained a $1 net asset value in early August.
Although the fund can use additional blockchains for eligible accounts, the SEC relief specifically provides for FTIS-created Stellar wallets for the investing Franklin funds.
No-Action Letter Does Not Create Broader Tokenization Rule
The relief is limited to Franklin’s stated custody structure. It is not a new SEC rule or general authorization allowing registered funds to custody tokenized assets under the same arrangement.
The SEC staff also stressed that the letter represents only an enforcement position and does not alter existing law.
For Franklin’s eligible funds, the practical result is narrower: they can hold shares of the On-Chain Fund for cash management without complying with three Rule 17f-2 requirements designed around physical securities, provided the specified safeguards remain in place.
