Key Takeaways
- • The SEC's Division of Investment Management issued a no-action letter to Franklin Templeton, permitting its registered funds (mutual funds and ETFs) to invest in and hold shares of its blockchain-based OnChain U.S. Government Money Fund (FOBXX/BENJI) for cash management purposes without satisfying certain physical-vault custody requirements under the Investment Company Act of 1940.
- • BENJI tokenizes Franklin Templeton's FOBXX money market fund—a regulated fund backed entirely by U.S. government securities—and operates across multiple blockchain networks with an integrated record-keeping system combining on-chain Stellar blockchain transactions with off-chain book-entry data managed by Franklin's transfer agent.
- • The SEC's decision cites Section 17(f) and Rule 17f-2 of the 1940 Act, drawing precedent from a 1992 Franklin no-action letter, establishing that the blended on-chain/off-chain architecture and Franklin Templeton Investor Services' control of blockchain wallets and private keys sufficiently replicate traditional book-entry safeguards.
- • The approval enables conventional Franklin-registered funds to access operational advantages of the OnChain fund, including faster transaction processing, more frequent pricing updates, and 24/7 trading capabilities, expanding the practical utility of tokenized securities within a regulated fund ecosystem.
- • Individual U.S. investors access BENJI exclusively through the Benji by Franklin Templeton mobile application (iOS and Android), creating a controlled distribution channel for the tokenized fund shares.
Summary
Franklin Templeton has secured regulatory approval from the SEC to allow its traditional registered investment funds—including mutual funds and exchange-traded funds—to invest in its tokenized OnChain U.S. Government Money Fund (FOBXX), known by its token designation BENJI. The SEC's Division of Investment Management issued a no-action letter on Wednesday, clearing the way for this cross-fund investment structure under specific provisions of the Investment Company Act of 1940.
The FOBXX fund operates as a fully regulated money market fund backed by U.S. government securities, with at least 99.5% of total assets invested in government debt instruments. BENJI represents individual shares of this fund, and the fund operates via a hybrid infrastructure combining blockchain settlement on the Stellar network with traditional off-chain record-keeping. Franklin Templeton Investor Services maintains full operational control, including management of blockchain wallets, private keys, and the official shareholder file, while the firm's affiliated transfer agent handles administrative functions and error correction.
The SEC's no-action relief specifically exempted Franklin's arrangement from certain Rule 17f-2 provisions that traditionally apply to physical securities and vault custody requirements. The agency determined that BENJI's blended on-chain/off-chain architecture—with Franklin Templeton controlling all blockchain infrastructure—functionally replicated the safeguards inherent in traditional book-entry systems. The SEC cited Section 17(f) of the 1940 Act and referenced its own 1992 no-action letter involving Franklin to establish regulatory precedent. According to Bloomberg analyst James Seyffart, the decision "opens the door for Franklin's registered funds (mutual funds, ETFs, etc) to hold its OnChain fund despite not technically satisfying 1940 Act custody rules."
This approval enables Franklin's registered funds to leverage operational advantages of the OnChain structure, including faster transaction settlement, more frequent net asset value calculations, and participation in 24/7 blockchain-based trading infrastructure. The decision represents a significant step in integrating tokenized securities within conventional regulated fund architecture, allowing multi-tier investment structures within a single asset manager's ecosystem. Distribution remains controlled through the Benji by Franklin Templeton mobile application, available exclusively to U.S. investors on iOS and Android platforms.
The FOBXX fund operates as a fully regulated money market fund backed by U.S. government securities, with at least 99.5% of total assets invested in government debt instruments. BENJI represents individual shares of this fund, and the fund operates via a hybrid infrastructure combining blockchain settlement on the Stellar network with traditional off-chain record-keeping. Franklin Templeton Investor Services maintains full operational control, including management of blockchain wallets, private keys, and the official shareholder file, while the firm's affiliated transfer agent handles administrative functions and error correction.
The SEC's no-action relief specifically exempted Franklin's arrangement from certain Rule 17f-2 provisions that traditionally apply to physical securities and vault custody requirements. The agency determined that BENJI's blended on-chain/off-chain architecture—with Franklin Templeton controlling all blockchain infrastructure—functionally replicated the safeguards inherent in traditional book-entry systems. The SEC cited Section 17(f) of the 1940 Act and referenced its own 1992 no-action letter involving Franklin to establish regulatory precedent. According to Bloomberg analyst James Seyffart, the decision "opens the door for Franklin's registered funds (mutual funds, ETFs, etc) to hold its OnChain fund despite not technically satisfying 1940 Act custody rules."
This approval enables Franklin's registered funds to leverage operational advantages of the OnChain structure, including faster transaction settlement, more frequent net asset value calculations, and participation in 24/7 blockchain-based trading infrastructure. The decision represents a significant step in integrating tokenized securities within conventional regulated fund architecture, allowing multi-tier investment structures within a single asset manager's ecosystem. Distribution remains controlled through the Benji by Franklin Templeton mobile application, available exclusively to U.S. investors on iOS and Android platforms.
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