SEC Clears Path for Franklin Templeton to Integrate BENJI into ETFs

The U.S. Securities and Exchange Commission’s Division of Investment Management confirmed in an August 12 letter that it would not recommend enforcement action regarding the proposed custody arrangement for the Franklin OnChain U.S. Government Money Fund (FOBXX). Under the current Investment Company Act of 1940, custody rules were originally designed for physical certificates and vaults; the SEC’s decision acknowledges the firm’s hybrid model, which blends blockchain transaction data with a traditional transfer-agent system.

While the regulatory hurdle is cleared, implementation is not automatic. Each individual fund board must review and approve the integration of the tokenized shares before they can appear in a portfolio. Sandy Kaul, Franklin Templeton’s head of innovation and digital assets, indicated that the firm expects to begin placing the tokens into conventional products as early as the fourth quarter. The structure ensures that the transfer agent retains the authority to correct blockchain errors and maintain official shareholder records, keeping the assets within the established U.S. registered-fund framework.

By incorporating BENJI, Franklin Templeton aims to optimize cash management and liquidity. Because FOBXX invests in interest-bearing government instruments, funds can potentially capture yield on cash that would otherwise sit idle. This approach follows a series of tests by the asset manager, including partnerships with MoonPay and Kraken to utilize tokenized shares as collateral. As tokenized assets across the industry reach approximately $38 billion, the firm’s move signals a broader trend among major asset managers, including BlackRock, to leverage blockchain technology for greater operational efficiency within traditional finance.