Franklin Templeton Seeks SEC Clarity for Tokenized Fund Trading

At an Oct. 9 meeting with the SEC’s Crypto Task Force, Franklin Templeton raised possible regulatory relief for blockchain-based trading of tokenized money-market funds and exchange-traded funds.

The proposed agenda focused on how Section 22(d) and Rule 22c-1 would apply when tokenized money-market fund shares trade against tokenized National Market System stocks. It also examined whether liquidity providers could charge fees in those transactions.

Section 22(d) generally addresses the prices at which redeemable fund shares may be sold. Rule 22c-1 generally requires fund transactions to use the next calculated net asset value after an order is received. Applying those requirements to automated liquidity pools could affect how tokenized fund shares are bought and sold.

The discussions also covered tokenized NMS exchange-traded funds paired with tokenized stocks, permitted payment stablecoins or tokenized money-market funds. Franklin Templeton raised whether additional relief would be needed because a tokenized securities venue is not a national securities exchange.

Another part of the agenda addressed pools holding specified tokenized assets and issuing interests to liquidity providers. The questions included whether those pools could be treated as investment companies and whether their interests could qualify as securities under the Securities Act of 1933 and the Securities Exchange Act of 1934.

A Sept. 17 SEC order established a temporary, conditional framework for certain permissioned venues trading tokenized NMS stocks through automated-market-maker liquidity pools. The framework allows tokenized money-market funds to serve as one possible trading pair, but it does not provide an exemption under the Investment Company Act of 1940 or resolve related Section 22(d) and Rule 22c-1 questions. The framework is set to expire five years after publication.

Franklin Templeton’s Franklin OnChain U.S. Government Money Fund is an open-end government money-market fund that relies on Rule 2a-7. The BENJI token represents shares in the fund, whose assets under management totaled $1.98 billion as of April 29. Franklin Templeton’s companywide assets under management totaled $1.68 trillion as of March 31.

SEC staff separately issued a no-action position on Aug. 12 concerning custody arrangements for funds investing in shares of the OnChain Fund. That position addressed Section 17(f) and Rule 17f-2 custody requirements rather than secondary-market trading under Section 22(d) or Rule 22c-1.

Franklin Templeton also connected its Benji Technology Platform with MoonPay Trade on June 2, allowing eligible institutions to move through supported stablecoins and tokenized money-market fund exposure using on-chain execution. The company has previously enabled institutional use of tokenized fund shares as collateral for eligible crypto trading through a custody-based arrangement.