Franklin Templeton gets SEC clearance to add BENJI to ETFs

Franklin Templeton has secured U.S. regulatory clearance that could place its $726 million tokenized money-market fund inside conventional mutual funds and ETFs as early as the fourth quarter.

Summary

• Franklin funds may use BENJI as a portfolio holding, cash position or collateral.
• The SEC relief covers custody rules under the Investment Company Act of 1940.
• Fund boards must approve the arrangement before individual products can adopt it.
• Franklin expects implementation as early as the fourth quarter, with an earlier start possible.

SEC clearance allows Franklin funds to hold BENJI

The U.S. Securities and Exchange Commission's Division of Investment Management said in an Aug. 12 letter that it would not recommend enforcement action if Franklin Templeton's registered funds hold shares of the Franklin OnChain U.S. Government Money Fund under the proposed custody arrangement.

Known by the ticker FOBXX, the money-market fund records eligible share transactions on public blockchains, with each BENJI token representing one fund share. Its portfolio consists mainly of U.S. government securities, cash, and repurchase agreements backed by government securities or cash.

The relief applies to Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2, which govern how registered investment companies safeguard assets. Several requirements in the rule were developed for physical securities, including provisions involving certificates, vaults, and physical inspections.

Under Franklin's proposed structure, its registered mutual funds and ETFs could hold FOBXX without following certain requirements designed for assets represented by paper certificates. The funds could use BENJI as an investment, a cash-management tool, or collateral, depending on each product's strategy and approvals.

Bloomberg reported on Aug. 20 that Franklin expects to begin placing the tokenized fund within conventional products as early as the fourth quarter, although implementation could begin sooner. Sandy Kaul, Franklin Templeton's head of innovation and digital assets, told the publication that a fund could hold the tokens once it has been onboarded.

Individual products cannot adopt the arrangement automatically. According to Kaul, each fund's board must first approve the use of BENJI, leaving the timing dependent on product-level reviews even after the SEC staff granted the requested relief.

Franklin Templeton keeps traditional controls over tokenized shares

Rather than making a blockchain ledger the only ownership record, Franklin's model combines on-chain transaction data with its established transfer-agent system. Franklin Templeton Investor Services would create wallets for participating funds and retain control of the associated private keys.

The affiliated transfer agent would continue to maintain the official shareholder record and perform administrative duties. According to the SEC letter, Franklin's system also allows the transfer agent to correct blockchain errors and restore records when needed.

SEC staff compared the arrangement with book-entry custody models previously considered under the Investment Company Act. The letter also cited regulatory treatment granted to Franklin in 1992, when the agency addressed securities recorded electronically instead of through physical certificates.

As crypto.news previously reported, the SEC concluded that it would not recommend action over Franklin's proposed treatment of FOBXX shares. The decision is a no-action position based on the facts and representations in Franklin's request, rather than a new rule covering every tokenized fund structure.

For U.S. investors, the arrangement means an otherwise conventional Franklin ETF or mutual fund could gain exposure to a blockchain-recorded security without requiring its shareholders to open a crypto wallet or purchase BENJI directly. Investors would continue to own shares in the conventional fund, while its portfolio could include FOBXX.

The structure also keeps the tokenized asset within the U.S. registered-fund system. FOBXX remains a mutual fund regulated under the Investment Company Act, and the transfer agent retains its established role despite the use of public blockchain records.

BENJI could improve cash and collateral management

Franklin plans to use BENJI within its funds to manage cash balances more precisely and reduce the amount of uninvested money held for liquidity needs, according to Kaul. Because FOBXX invests in interest-bearing government instruments, cash allocated to the fund can continue earning a return while remaining available for portfolio operations.

"We want our funds to experience the efficiency of having a better money market fund option: manage more precisely, capture more of the yield, better and more tightly manage how much cash liquidity they have to hold," Kaul told Bloomberg.

A fund's actual use would depend on its investment mandate. One product could treat FOBXX as a cash position, while another could use its shares as collateral where the relevant platform and legal structure permit it.

Franklin has already tested both functions outside its own conventional fund range. In June, the asset manager added BENJI to MoonPay, allowing eligible institutional clients to exchange stablecoins such as USDC and USDT for shares through MoonPay Trade.

Franklin said the MoonPay arrangement could support portfolio rebalancing, treasury operations, collateral and liquidity management. MoonPay's institutional trading system provides access to more than 200 blockchain networks through one application programming interface, according to the companies.

A separate May agreement with Kraken parent Payward also positioned BENJI as collateral and cash management infrastructure. The companies said they would also work on tokenized stocks, yield products, and actively managed on-chain investment products.

In February, Franklin and Binance introduced another model for eligible institutions. Participating clients can pledge tokenized money-market fund shares as off-exchange collateral while the underlying assets remain with a regulated custodian.

Tokenized funds expand across U.S. asset management

Franklin launched FOBXX on Stellar in 2021, making it the first U.S.-registered mutual fund to use a public blockchain to process transactions and record share ownership. Blockchain access later expanded to networks including Ethereum, Solana, Polygon, Avalanche, Arbitrum, Base, and Aptos.

RWA.xyz data cited in earlier reporting placed the fund's assets at about $726 million. The tracker separately measures Franklin's full Benji tokenization platform, which includes products beyond FOBXX and therefore carries a higher asset total.

The tokenized asset market has reached roughly $38 billion, according to RWA.xyz data cited by Bloomberg. Traditional financial firms have pursued blockchain-based versions of funds and securities while testing faster settlement, extended transaction hours, and new uses for investment assets as collateral.

BlackRock has also expanded in the sector through its USD Institutional Digital Liquidity Fund, or BUIDL. In May, the asset manager filed a second fund using Securitize as its tokenization provider after BUIDL grew to about $2.3 billion in assets.

Franklin, meanwhile, completed its acquisition of crypto investment manager 250 Digital in June and combined the business with its existing digital-asset operations under Franklin Crypto. The company managed about $1.78 trillion in assets worldwide when the transaction closed.