Franklin Templeton Secures No-Action Relief For On-Chain Custody Of Tokenized Money Market Fund
The U.S. Securities and Exchange Commission’s Division of Investment Management has issued a no-action letter permitting Franklin Templeton’s registered funding funds to carry shares of the agency’s tokenized cash market fund by way of a blockchain-integrated custody system.
The resolution, disclosed Wednesday, permits typical mutual funds and ETFs throughout the Franklin Templeton household to spend money on the Franklin OnChain U.S. Government Money Fund—generally often called BENJI—for money administration functions with out complying with paragraphs (b), (e), and (f) of Rule 17f-2 below the Investment Company Act of 1940, which govern bodily vault custody and certificates notation.
BENJI, which launched on the Stellar blockchain in 2021 and has since expanded to Ethereum and Solana, invests primarily in U.S. authorities securities and seeks to take care of a steady $1 share worth. The fund at present holds roughly $726 million in belongings below administration, in accordance with information from RWA.xyz.
The SEC employees decided that the proposed association was sufficiently analogous to a 1992 no-action letter additionally involving Franklin, which permitted affiliated master-feeder fund custody by way of book-entry data somewhat than bodily certificates. Bloomberg analyst James Seyffart famous that the letter successfully “opens the door” for Franklin’s registered funds to carry the OnChain product regardless of not technically satisfying conventional 1940 Act custody necessities. The investing funds count on operational advantages together with hourly web asset worth calculations, intraday buying and selling, sooner settlement, and diminished prices.
Custody Architecture and Regulatory Safeguards
Under the permitted construction, Franklin Templeton Investor Services (FTIS)—a registered switch agent and affiliate of the funds—will function custodian whereas sustaining the official grasp securityholder file by way of a proprietary system that hyperlinks inside book-entry data with nameless transactional information on the blockchain.
FTIS will create and management segregated Stellar wallets for every investing fund, securing personal keys by way of multi-signature and multi-party computation methods with geographically distributed signers and offline restoration capabilities. Crucially, FTIS retains unilateral administrative authority to appropriate errors or unauthorized transactions, freeze or migrate pockets data, and restore the official possession report no matter blockchain entries.
The employees’s no-action place is conditioned on rigorous ongoing safeguards: every fund’s board of trustees should approve and yearly evaluation the association; transaction confirmations should be routed to approved personnel separate from these initiating directions; and all exercise should endure each day reconciliation in opposition to the fund’s transaction authorizations.
Additionally, impartial public accountants should carry out at the least three verifications every fiscal 12 months—at the least two with out prior discover—evaluating FTIS’s switch agent data with the books of each the investing fund and BENJI. Transition protocols require FTIS to ship all administrative controls, sensible contract permissions, and official data to any successor switch agent upon departure. The SEC emphasised that the letter displays employees views solely, carries no authorized power, and doesn’t alter or amend relevant regulation.
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