SEC staff clears Franklin funds to run cash through an onchain money fund

Franklin Templeton's U.S. registered funds can now hold shares of the firm's onchain government money fund through an affiliated blockchain custody and recordkeeping system, The Defiant reports. The SEC's Division of Investment Management issued no-action relief on Wednesday, clearing FOBXX for use as an internal cash vehicle, including for collateral posted in securities lending.

The obstacle is Rule 17f-2, the SEC custody rule written for securities kept in a physical vault. It requires custody of certificates, notation of deposits and withdrawals, and three independent verification counts per year. A tokenized share register satisfies none of that. The staff letter declines to enforce paragraphs (b), (e) and (f) of the rule, subject to twelve conditions.

Franklin Templeton Investor Services maintains the official ownership record in an internal book-entry system linked in real time to Stellar; other networks are available on request. Shareholder identities remain offchain; the blockchain carries transaction history, net asset value and dividends. FTIS controls the private keys and holds administrative powers to reverse unauthorized transactions, freeze or migrate wallets, and restore the official record.

Because FTIS is affiliated with the investing funds, the arrangement is self-custody, and the conditions are shaped to offset that concentration. Each fund gets its own wallet and a segregated account. Transaction instructions require cryptographic authentication and approval by separate personnel; confirmations are reconciled daily against the fund's authorizations. Each fund's board must approve the arrangement up front and review it annually.

Franklin told the SEC that FOBXX publishes net asset value hourly, supports intraday trading, and processes transactions more quickly than the cash-management vehicle its funds currently use. The blockchain-recorded shares, called BENJI, represent one share of the government money market fund. Total assets were about $726.6 million as of Aug. 12, according to RWA.xyz.

The dollar figure matters less than what the relief represents. A tokenized money fund has now been written into the operating machinery of registered funds, with the SEC's approval delivered as a list of operational controls rather than a rule amendment. Those twelve conditions will be the reference for any other issuer waiting on the same green light.

How far the relief extends remains untested. It is written for an affiliated arrangement, not for third-party blockchain custodians. If the conditions map cleanly onto an independent custodian, the tokenized cash market opens up; if not, this stays a single-firm carve-out. The letter doesn't answer that — the next no-action request will.