Franklin Templeton Wins SEC Staff Relief to Add Tokenized Assets to Traditional Funds

Franklin Templeton is moving closer to bringing tokenized assets into mainstream investment products after receiving SEC staff relief that would allow its conventional funds to invest in shares of its blockchain-based money market fund. In an Aug. 12 no-action letter, the SEC's Division of Investment Management said it would not recommend enforcement action if Franklin funds use Franklin Templeton Investor Services as custodian for investments in the Franklin OnChain U.S. Government Money Fund, provided the firm meets a set of conditions. The SEC emphasized the letter reflects a staff enforcement position and does not represent Commission approval or a legal conclusion. The relief gives Franklin funds another option for cash management, including handling cash balances and securities-lending collateral through the OnChain Fund. Franklin said the structure could eventually allow its tokenized money market fund to be used inside ETFs and mutual funds, integrating tokenized assets into traditional portfolios. The OnChain Fund uses an integrated recordkeeping model in which blockchain networks capture transaction data and anonymized shareholder information, while Franklin Templeton Investor Services maintains the official ownership register. The fund currently uses Stellar as its primary public blockchain. Franklin said the setup could enhance liquidity management through hourly net asset value calculations, intraday trading, faster processing and potentially lower costs. The SEC letter noted Franklin funds believe these features could offer operational advantages versus their existing cash-management vehicle. Sandy Kaul, Franklin Templeton's head of digital assets and innovation, told Bloomberg the firm aims to manage cash with greater precision, capture more yield and reduce the amount of liquidity it needs to hold. Franklin said it could begin using the tokenized fund in conventional portfolios as early as the fourth quarter, subject to approval by individual fund boards. Franklin also plans to develop additional tokenized products that could function as cash or collateral across its fund lineup. Franklin launched the OnChain U.S. Government Money Fund in 2021. The fund uses the BENJI token to represent shares and was the first U.S.-registered money market fund to use a public blockchain as its official system of record. Franklin said the broader BENJI suite had $1.98 billion in assets under management as of April 29.