SEC Clears Path for Franklin Templeton’s Tokenized Fund

The SEC issues a no-action letter for Franklin Templeton’s FOBXX, allowing traditional funds to use tokenized assets for liquidity management.

The August 12 decision removes a significant practical barrier to using blockchain-based liquidity management products within the traditional financial sector.

SEC Clears Regulatory Hurdle for Tokenized Fund

The SEC’s Division of Investment Management has issued a “no-action letter,” indicating that staff will not recommend enforcement action if Franklin Templeton’s registered open-end and closed-end funds invest in the Franklin OnChain U.S. Government Money Fund (FOBXX) under agreed-upon conditions.

Until now, the primary obstacle stemmed from Rule 17f-2 of the Investment Company Act, which governs how investment firms maintain custody of their assets. This rule was originally designed for traditional securities, making its requirements difficult to apply to fund shares recorded via blockchain technology.

Rather than eliminating asset control requirements entirely, the SEC is granting relief provided that 12 specific operational conditions are met.

Franklin Templeton Gains New Liquidity Management Tool

The practical result is that Franklin Templeton can now move capital from its traditional registered funds into FOBXX. The firm intends to utilize the product for general cash management and as collateral for securities operations.

FOBXX offers several operational advantages over traditional cash management tools, including hourly Net Asset Value (NAV) calculations, intra-day trading, and faster transaction processing speeds.

Launched in April 2021, Franklin Templeton‘s fund was the first U.S.-registered mutual fund to use a public blockchain for transaction processing and ownership recording. While shares are represented by BENJI tokens, the underlying assets remain traditional; at least 99.5% of the portfolio is held in U.S. government securities, cash, and fully collateralized repo agreements, maintaining a target price of $1 per share.

Originally built on Stellar, FOBXX has expanded its presence to the Ethereum, Solana, Arbitrum, Polygon, Base, and Avalanche networks. As of August, the fund’s assets are valued at approximately $727 million.

Blockchain Access Remains Under Strict Oversight

This regulatory relief does not imply a free-for-all for asset transfers without traditional safeguards. Franklin Templeton Investor Services is required to maintain separate wallets for each investing fund and protect private keys using multi-signature protocols.

Furthermore, the firm must perform daily transaction reconciliations and maintain the administrative capability to block or reverse unauthorized operations. The broader significance of this decision lies in how FOBXX is utilized; rather than tokenization serving merely as a distribution method, Franklin Templeton can now integrate it into the daily liquidity management of traditional investment products.

The next metric to watch will be the actual volume of capital Franklin Templeton funds begin to funnel into FOBXX. With $727 million already under management, the product has achieved significant scale, and the SEC’s new stance provides a clear growth channel through the traditional fund industry.