Franklin Templeton is preparing to fold tokenized assets into its conventional mutual funds and ETFs, eight days after SEC staff cleared the firm to hold its $721 million blockchain-based money market fund inside those portfolios. The relief carries twelve conditions covering board oversight, audits, and control of the fund's Stellar wallets.
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 the relief as the first US regulatory clearance for digitally native products inside conventional funds.
The SEC's Division of Investment Management was careful to limit the weight of its own letter. According to the Division, the no-action position "has no legal force or effect," the staff wrote on August 12.
Fund Holds $721 Million on Stellar
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. Those paragraphs assume a physical certificate sitting in a vault, a model that does not fit a token recorded on a public ledger. Franklin Templeton Investor Services will open a separate wallet on Stellar for each investment fund covered by the relief.
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, the fund at the center of the staff letter.
Twelve Conditions Attached
Staff attached twelve conditions to the relief. 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. If it ever stops acting as transfer agent, it must hand the successor administrative control over the smart contracts, so custody of the underlying record never depends on one administrator alone.
Independent public accountants must verify each fund's holdings at least three times a fiscal year, two without prior notice. The funds may also use the shares for cash balances and securities lending collateral, the same uses available to conventionally held shares.
Source: CryptoPotato
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