Franklin Templeton is preparing to put tokenized assets inside its conventional mutual funds and ETFs, Bloomberg reported on Thursday, eight days after SEC staff cleared the firm to hold its $721 million blockchain-based money market fund in those portfolios.
Franklin characterizes relief as the first US regulatory clearance for digitally native products inside conventional funds.
“It is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content,” the Division of Investment Management wrote on August 12, adding that it “has no legal force or effect.”
Staff set aside paragraphs (b), (e), and (f) of Rule 17f-2 under the Investment Company Act of 1940, the provisions built around vault custody of share certificates.
The Franklin OnChain U.S. Government Money Fund (FOBXX) reported net assets of $720,928,224 on July 31 and a 3.50% seven-day net yield. Franklin Templeton Investor Services will open a separate wallet on Stellar for each investment fund.
Twelve Conditions Attached
Staff attached twelve conditions. Each fund’s board of trustees must approve the arrangement and review it at least annually.
FTIS has to retain the power to correct errors, freeze or migrate wallet records and restore the official ownership record, and if it ever stops acting as transfer agent it must hand the successor administrative control over the smart contracts.
Independent public accountants must verify each fund’s holdings at least three times a fiscal year, two without prior notice. Moreover, funds may use the shares for cash balances and securities lending collateral. CryptoPotato reported in December that BENJI served as collateral in a SemiLiquid credit pilot, staying encumbered across the loan lifecycle.
Relief Rests on a 1992 Letter
Staff granted the position by analogy to a September 24, 1992 letter to Franklin Investors Securities Trust, which covered a master-feeder arrangement where an affiliated transfer agent held fund shares in book-entry form. Franklin argued a Stellar wallet raises the same question, since FTIS still maintains the official ownership record and keeps unilateral control over it.
The letter names 23 investment managers, among them Putnam, Western Asset, ClearBridge, BrandywineGLOBAL, Royce and Clarion Partners. CryptoPotato has covered Franklin’s agreement to buy 250 Digital, the firm spun out of CoinFund, as its digital asset arm passed 50 staff.
On August 18, the SEC proposed the Regulation Crypto Assets with $5 million and $75 million offering paths, a proposed rule carrying a 60-day comment period. Franklin’s request was signed by Navid J. Tofigh, Senior Associate General Counsel, and answered by Taylor Evenson, Senior Counsel.
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Source: https://cryptopotato.com/franklin-templeton-wins-sec-staff-relief-for-its-721m-onchain-fund/
