Franklin Templeton held discussions with SEC Crypto Task Force staff on October 9 to explore whether regulatory exemptions could permit tokenized money market funds and exchange-traded funds (ETFs) to trade through blockchain liquidity pools. The $1.79 trillion asset manager raised legal questions centered on fund-pricing rules, liquidity provider fees, and the classification of blockchain-based trading pools.
The meeting agenda examined whether investors could exchange blockchain-based fund shares for tokenized National Market System stocks through trading pairs on a blockchain venue. A central concern involves Section 22(d) of the Investment Company Act of 1940, which generally requires fund shares to be sold at prices stated in the fund's prospectus. Rule 22c-1 typically requires transactions at the next calculated share value after an order arrives. Franklin Templeton sought clarity on whether exemptions from these pricing rules would be necessary for the proposed trading arrangements and for liquidity provider fees.
The SEC issued an innovation exemption on September 17 that temporarily exempts qualifying blockchain venues and liquidity providers from certain exchange and dealer requirements. This exemption permits limited tokenized stock trading through pools accessible to approved participants, subject to conditions including trading-volume limits, equivalent shareholder rights, auditable smart contracts, and trading halts aligned with the underlying stock's primary exchange.
For tokenized ETFs, Franklin Templeton's agenda addressed trading pairs involving another tokenized stock, a permitted payment stablecoin, or a tokenized money market fund. The company also questioned whether liquidity pools themselves require exemptions from investment-company regulation under the 1940 Act, which generally governs entities that pool investors' money to invest in securities.
Franklin Templeton's tokenized fund activity dates to 2021, when it launched the Franklin Onchain U.S. Government Money Fund (ticker FOBXX). BENJI tokens represent shares of this fund, and transferring a token transfers the associated share. The company's Benji Technology Platform processes transactions and tracks share ownership. In June, Franklin Templeton integrated its platform with Moonpay's crypto payments and trading infrastructure to allow eligible institutions to move between stablecoins and tokenized money market fund exposure. A May partnership with Payward outlined plans for tokenized investment and yield products, with BENJI integration for institutional use.
