Franklin Templeton, the $1.8 trillion asset management firm, met with the US Securities and Exchange Commission's Crypto Task Force to seek clarity on regulatory requirements for its tokenized financial products. The meeting addressed how the SEC's innovation exemption applies to tokenized money market funds, tokenized National Market System ETFs, and tokenized funds operating on liquidity pools.
According to an SEC memo, Franklin Templeton representatives Mike Muir, Navid Tofigh, and Sarah Bessin discussed the firm's digital assets business and its FOBXX government money market fund with the task force.
Key Questions on Relief Requirements
Franklin Templeton asked whether relief from Section 22(d) and Rule 22c-1 is necessary for tokenized money market fund shares to trade on tokenized securities venues and for liquidity providers to charge service fees. The firm also inquired whether tokenized NMS ETF shares require similar relief to trade on these venues alongside other tokenized NMS stocks, stablecoins, or tokenized money market funds.
Additional questions centered on whether relief is needed given that tokenized securities venues are not national securities exchanges, and whether liquidity pool mechanics require relief to prevent the pools from being classified as investment companies under securities law.
Background on SEC Actions
In August, the SEC's Division of Investment Management issued a no-action letter permitting certain Franklin Templeton-affiliated funds to invest in the OnChain Fund through blockchain wallets controlled by the transfer agent, subject to protective conditions.
In September, the SEC issued the Innovation Exemption under the Securities Exchange Act, which provided tokenized securities venues relief from exchange registration requirements and permitted them to operate automated market maker liquidity pools for trading tokenized NMS stocks. The exemption also provided certain liquidity providers relief from dealer registration requirements.
However, these exemptions do not automatically address the requirements of the 1940 Act that govern mutual funds, ETFs, and money market funds. Franklin Templeton seeks confirmation on whether additional relief is necessary for its tokenized funds and ETFs to operate within the Innovation Exemption framework without violating the 1940 Act.
