Franklin Templeton Seeks Regulatory Relief for Tokenized Fund Trading Pools

Global asset manager Franklin Templeton has engaged with the Securities and Exchange Commission to evaluate regulatory relief for tokenized fund trades across blockchain platforms, according to reports from Bitcoin.com News and KuCoin citing Huoxing Finance [F1]. The discussions, held with members of the SEC Crypto Task Force on Oct. 9, addressed fundamental legal constraints affecting trading pools, asset custody, fees, and share pricing [F2, F4, F43].

The outreach comes as investment managers attempt to integrate registered collective investment vehicles directly into on-chain decentralized market mechanisms [F4, F43]. Franklin Templeton, which managed $1.68 trillion in assets as of March 31, brought the inquiry forward to clarify how federal securities statutes apply to automated liquidity infrastructure [F4, F43, F56].

Regulatory Relief for Tokenized Fund Trades

The primary focus of the regulatory relief for tokenized fund trades involves operational conflicts under the Investment Company Act of 1940 [F1, F43, F44]. In the Oct. 9 session, the company raised questions regarding how statutory pricing frameworks apply when blockchain-based shares trade in pooled venues alongside other assets, KuCoin and Bitcoin.com News reported [F2, F44, F62].

Franklin Templeton examined the application of Section 22(d) and Rule 22c-1 to liquidity pools where shares of tokenized money market funds could be paired against tokenized National Market System equities [F7, F44, F46]. Section 22(d) mandates that redeemable fund shares be purchased at the current public offering price described in the prospectus, while Rule 22c-1 requires transactions to execute at the subsequent net asset value calculated after an order is received [F11, F12, F44, F46].

Automated liquidity pools price transactions dynamically using programmatic formulas, which can diverge from traditional fund pricing schedules [F47]. The firm questioned whether regulatory exemptions are required to accommodate these algorithmic pools and to permit liquidity providers supplying the capital to assess service fees [F8, F14, F45, F63].

ETF Trading Pairs and Liquidity Pool Status

The scope of the discussions extended beyond money market products to include tokenized exchange-traded funds [F4, F18, F48]. Franklin Templeton presented concepts for tokenized ETF trading pairs formed against tokenized stocks, permitted payment stablecoins, or tokenized money market fund shares [F18, F48, F65].

Because on-chain execution venues do not hold national securities exchange designations, the manager probed whether dedicated relief would be necessary to permit ETF shares to trade continuously on alternative networks, TokenPost reported [F20, F49].

The firm also sought regulatory perspective on the legal classification of the automated pools themselves [F21, F50, F65]. Franklin Templeton asked whether liquidity pools holding tokenized assets and distributing liquidity-provider positions could be defined as investment companies under the 1940 Act, or if those LP positions necessitate separate exemptions under the Securities Act of 1933 and the Securities Exchange Act of 1934 [F21, F22, F24, F25, F50].

Existing SEC Frameworks and Exemptions

A central backdrop to the dialogue is the SEC order from Oct. 17, which created a temporary five-year conditional structure for permissioned venues executing tokenized NMS stocks through automated market maker pools [F15, F51, F53]. That order exempts eligible entities from selected broker-dealer and national exchange mandates under defined operational terms [F15].

Those terms restrict access to approved market participants, set explicit volume thresholds, mandate public smart contracts, align trading halts with primary stock exchanges, and preserve shareholder rights [F16, F17]. While the Oct. 17 framework allows tokenized money market funds to function as pairing assets in pools, it stops short of providing exemptions under the Investment Company Act of 1940, leaving Section 22(d) and Rule 22c-1 issues unsettled [F51, F52].

Crypto News reported that Franklin Templeton CEO Jenny Johnson defended native on-chain accounting models during an appearance at the TOKEN2049 conference in Singapore [F73, F74]. Johnson criticized rival fund structures as digital twins whose official records remain in legacy transfer agencies while external tokens merely mirror balances [F73, F74, F79, F82]. She contrasted those setups with the firm's architecture, which embeds primary ownership records directly into blockchain platforms [F73, F81, F83].

BENJI Architecture and On-Chain Growth

Franklin Templeton first rolled out its digital asset recordkeeping infrastructure in 2021 by launching the Franklin Onchain U.S. Government Money Fund, registered under ticker FOBXX and relying on Rule 2a-7 [F30, F31, F54, F72]. Each BENJI token represents a single share in the open-end government fund, with share transfers managed directly by the proprietary Benji Technology Platform across public blockchains including Stellar, Ethereum, Polygon, Arbitrum, Avalanche, Aptos, Base, Solana, and BNB Smart Chain [F30, F32, F33, F54, F92].

According to an Aug. 12 SEC staff letter, Franklin Templeton Investor Services operates a dual ledger structure [F87]. The transfer agent tracks private investor data internally while recording anonymous transaction values on public blockchains, combining the inputs in real time to generate the official register [F87, F88, F91]. The letter noted that the transfer agent maintains authority to reverse unauthorized transfers, freeze accounts, migrate wallet registries, and re-establish primary records when required [F89, F90].

Data tracked by RWA.xyz showed Franklin Templeton Benji Investments holding approximately $2.60 billion in distributed asset value on Oct. 9, ranking it second across tokenized U.S. Treasury platforms [F104, F105]. The asset figure was led by iBENJI at roughly $1.71 billion and BENJI at approximately $760.6 million [F107]. Net assets reported for the conventional FOBXX fund stood at $686.64 million as of Aug. 31, while TokenPost reported the OnChain Fund reached $1.98 billion in assets under management as of April 29 [F55, F108, F109].

Franklin Templeton has continued expanding institutional applications for its tokens. The firm integrated its platform with MoonPay Trade on June 2 to let qualified institutions trade between tokenized fund shares and supported stablecoins [F35, F60, F114]. Additionally, SEC staff issued a no-action position on Aug. 12 regarding internal fund investments, allowing affiliated Franklin funds to hold BENJI shares under specific custody and board oversight procedures [F28, F57, F58, F116, F118].

Conclusion

Franklin Templeton's engagement with the SEC Crypto Task Force highlights unresolved legal hurdles facing tokenized fund trades in secondary decentralized markets. While existing regulatory orders offer conditional safe harbors for automated trading venues handling tokenized equities, they do not resolve 1940 Act requirements surrounding fund pricing and pool classifications [F43, F51, F52]. The firm is continuing to advocate for formal regulatory relief and exemptions that would legally permit open-end funds and ETFs to settle directly across automated blockchain liquidity pools [F1, F68].

Frequently Asked Questions

When did Franklin Templeton meet with the SEC Crypto Task Force?

Franklin Templeton met with staff from the SEC Crypto Task Force on Oct. 9 to discuss legal questions regarding pricing, service fees, and asset pools for tokenized funds [F2, F4, F43].

Which laws are central to the regulatory relief for tokenized fund trades?

The primary issues involve Section 22(d) and Rule 22c-1 of the Investment Company Act of 1940, which dictate prospectus pricing and forward net asset value execution for redeemable fund shares [F11, F12, F44]. Additional relief may involve the Securities Act of 1933 and the Securities Exchange Act of 1934 [F25].

What is Franklin Templeton's BENJI token?

BENJI is a blockchain token representing shares of the Franklin Onchain U.S. Government Money Fund (FOBXX), an open-end government money market fund launched in 2021 [F27, F30, F31, F54]. Transferring a BENJI token transfers the underlying fund share recorded via the Benji Technology Platform [F32, F33].

How much distributed asset value does the Benji platform hold?

Tracker RWA.xyz reported that Franklin Templeton Benji Investments held approximately $2.60 billion in distributed asset value on Oct. 9, ranking second among tokenized U.S. Treasury platforms [F104, F105]. Standalone BENJI assets stood at roughly $760.6 million, with iBENJI representing approximately $1.71 billion [F107].