Franklin Templeton Secures SEC Approval for Blockchain Fund Investment

Franklin Templeton has received SEC staff relief for its $721 million blockchain-based money market fund, The Franklin OnChain U.S. Government Money Fund (FOBXX), to be held in conventional mutual funds and ETFs. This is a significant development as it marks the first US regulatory clearance for digitally native products inside conventional funds.

The SEC staff cleared the firm's request on August 12, citing a September 24, 1992 letter to Franklin Investors Securities Trust as precedent. The letter covered a master-feeder arrangement where an affiliated transfer agent held fund shares in book-entry form. Franklin argued that a Stellar wallet raises similar questions, since the company still maintains the official ownership record and keeps unilateral control over it.

The relief is conditional on 12 terms, including annual review by each fund's board of trustees, verification of holdings by independent public accountants at least three times a year, and permission for funds to use shares as cash balances and securities lending collateral. The Franklin OnChain U.S. Government Money Fund reported net assets of $720,928,224 on July 31 with a 3.50% seven-day net yield.

Franklin Templeton plans to open a separate wallet on Stellar for each investment fund, and has retained the power to correct errors, freeze or migrate wallet records, and restore the official ownership record. If it ever stops acting as transfer agent, it must hand administrative control over smart contracts to its successor.