SEC lets Franklin Templeton funds buy BENJI

The U.S. Securities and Exchange Commission has given Franklin Templeton staff-level assurance that its conventional registered funds may use the firm’s blockchain-based money market fund for cash management, removing a custody obstacle created by rules drafted around paper securities certificates.

In a no-action letter issued by the SEC’s Division of Investment Management and posted Wednesday, the agency said it would not recommend enforcement action if Franklin Templeton’s registered investment companies hold shares in the Franklin OnChain U.S. Government Money Fund under the proposed arrangement. The letter addresses Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2, provisions governing how investment companies maintain custody of assets.

The decision allows Franklin Templeton-managed funds to buy shares of the OnChain U.S. Government Money Fund, known by its ticker FOBXX and commonly branded as BENJI, without complying with certain requirements designed for securities held in physical vaults. That gives a traditional fund complex a route to use an onchain money market fund while retaining centralized control of wallets, shareholder records and transaction administration.

A blockchain record paired with traditional control

Franklin Templeton told the SEC that FOBXX uses an integrated record-keeping model. Its internal book-entry system operates alongside transaction records maintained on the Stellar blockchain, rather than relying on the blockchain alone as the official account record.

Franklin Templeton Investor Services, an affiliate acting as transfer agent, would establish Stellar wallets for each registered fund that invests in FOBXX. The affiliate would control those wallets and retain the private keys, according to the SEC letter. It would also continue to perform transfer-agent duties and maintain the official shareholder file.

That structure was central to the SEC staff’s conclusion. The Division of Investment Management said the arrangement resembled book-entry systems that have long been used for conventional securities, where records replace physical certificates. In the staff’s view, requiring the funds to meet provisions of Rule 17f-2 related to safekeeping certificates in vaults was unnecessary under the facts Franklin Templeton presented.

The SEC cited a 1992 no-action letter involving Franklin as part of its analysis. No-action letters represent the views of SEC staff on a specific request and factual arrangement; they do not amend the Investment Company Act or create a binding rule applicable to all fund managers.

Cash management use for registered funds

Money market funds are widely used within fund complexes to hold cash awaiting investment, manage redemptions and receive proceeds from portfolio activity. Franklin Templeton’s request focused on whether registered funds could use FOBXX in that capacity despite the fund’s use of blockchain-based share records.

FOBXX invests primarily in U.S. government securities and seeks to maintain a stable net asset value of $1 per share. Franklin Templeton launched the fund on Stellar in 2021, placing it among the earliest regulated U.S. money market funds to use public blockchain infrastructure for share ownership records.

The fund has since expanded to additional blockchains, including Ethereum and Solana. Its multi-network presence has made it a prominent example of tokenized fund shares, though the arrangement considered in the SEC letter specifically describes Stellar wallets and Stellar transaction records for the investing registered funds.

According to RWA.xyz, a platform tracking tokenized real-world assets, FOBXX held about $726 million in assets under management, with most of that value represented on Stellar. The figure places the fund well below the largest conventional money market products, but it gives Franklin Templeton an established regulated vehicle rather than a newly created pilot product.

Rules written for certificates meet digital fund shares

Rule 17f-2 dates from an era when mutual funds could directly hold physical stock certificates and other paper instruments. Its vault and access-control provisions were intended to limit risks around theft, unauthorized access and inaccurate asset records.

Tokenized fund shares raise a different operational question: who controls the private keys, who can authorize transfers, and which database is legally authoritative when an onchain record and a fund administrator’s books operate together. Franklin Templeton’s proposal kept those functions with an affiliated transfer agent rather than transferring them to individual portfolio managers or outside wallet providers.

That distinction limits the operational change for the investing funds. They would gain exposure to an onchain money market fund, but the custody model described to the SEC remains closely managed within Franklin Templeton’s existing fund-administration framework. The approval therefore connects blockchain settlement and record infrastructure to conventional registered-fund controls rather than replacing those controls with self-custody.

The letter could offer a useful template for other asset managers considering tokenized cash products, particularly where a transfer agent controls wallets and preserves an official offchain shareholder register. Any comparable firm would need to seek its own legal assessment, and different blockchain, custody or recordkeeping designs could produce different regulatory outcomes.

For Franklin Templeton, the SEC staff position gives its registered funds a clearer path to place operational cash into BENJI. The arrangement turns the firm’s tokenized government money fund from a product available to outside eligible holders into a potential internal cash-management tool across a traditional fund platform.