SEC clears Franklin Templeton funds to hold its onchain money fund

The SEC's Division of Investment Management said it won't recommend enforcement action if Franklin Templeton's registered funds hold shares of the firm's own tokenized money market fund for cash management, according to the no-action letter the agency issued on August 12.

The fund in question is the Franklin OnChain U.S. Government Money Fund, known by its ticker FOBXX and its BENJI branding, which records share ownership primarily on the Stellar blockchain network. Franklin Templeton asked the SEC to clear roughly two dozen of its own registered fund managers, including Franklin Advisers, Putnam Investment Management, Western Asset Management, and ClearBridge Investments among others, to park cash balances and securities-lending collateral in OnChain Fund shares as part of routine cash management.

The relief addresses a narrower legal snag than the headline suggests. It doesn't come from Section 17(a), the Investment Company Act provision that restricts transactions between affiliated funds. It comes from Section 17(f) and Rule 17f-2, custody rules written for physically certificated securities held in a vault. Because Franklin Templeton's own transfer agent handles the blockchain-based recordkeeping for the OnChain Fund, a fund holding those shares would technically count as self-custody under a rule that has no provision for a security that never existed as a paper certificate in the first place.

The SEC's letter leans on precedent rather than breaking new legal ground: it explicitly points back to a 1992 no-action letter covering affiliated master-feeder custody arrangements, treating this as an extension of that logic to blockchain-based recordkeeping rather than a novel theory. The relief comes with eleven conditions, including board approval and annual review, segregated blockchain wallets for each fund, and independent accountant verification at least three times a fiscal year, two of them unannounced.

“It opens the door for Franklin's registered funds, mutual funds, ETFs, and others, to hold its OnChain fund despite not technically satisfying Investment Company Act custody rules.”

— James Seyffart, ETF analyst, Bloomberg

• Relief covers roughly two dozen Franklin Templeton-affiliated fund managers holding shares of the Franklin OnChain U.S. Government Money Fund (FOBXX/BENJI)
• Legal basis: Section 17(f) custody rules (Rule 17f-2), not the Section 17(a) affiliated-transaction restrictions
• Conditions include board approval, segregated per-fund blockchain wallets, and thrice-yearly independent verification, two unannounced
• No Franklin Templeton executive has publicly commented on the letter as of publication

Franklin Templeton's move sits inside a broader race among asset managers to bring cash-equivalent products onchain. BlackRock recently extended its own $311 billion tokenized money market business into Europe, and regulators outside the US are moving too: Ireland's central bank approved its first tokenized fund on a public blockchain earlier this month. What sets Franklin Templeton's letter apart is its narrowness: it fixes a specific plumbing problem for one fund family's internal cash management, rather than opening a general path for any registered fund to hold tokenized assets. Other asset managers running their own registered fund families are likely watching closely, since the same custody mismatch between blockchain-based recordkeeping and decades-old vault-certificate rules applies to any firm trying to route internal cash through a tokenized product it manages itself.

This article is for informational purposes only and does not constitute investment advice.