Franklin Templeton Meets SEC to Inquire About Tokenized Fund Exemptions
On October 9, representatives from Franklin Templeton met with SEC Crypto Task Force staff to inquire whether tokenized money market funds require exemptions under the Investment Company Act of 1940 to trade in pairs with tokenized NMS stocks on a Tokenized Securities Venue.
Attendees included Mike Muir (SVP/Head of FIRST Technology), Navid Tofigh, and Sarah Bessin (both Senior Associate General Counsel). The agenda covered Franklin Templeton's digital asset business (including FOBXX), views on the Innovation Exemption, and potential issues related to the 1940 Act.
Specific questions focused on Section 22(d)/Rule 22c-1: whether liquidity providers need exemptions to charge service fees when trading tokenized money market fund shares paired with tokenized NMS stocks on TSV; whether the same applies when tokenized NMS ETFs are paired with other tokenized stocks, licensed payment stablecoins, or tokenized money market funds.
The agenda also inquired whether additional exemptions are needed for tokenized NMS ETFs trading on TSV, which is not a national securities exchange, and whether the liquidity pool mechanism (depositing designated tokenized assets/obtaining LP rights) needs exemptions to avoid being classified as an investment company, as well as whether LP rights require exemptions under the 1933/1934 Acts to avoid being classified as securities.
The meeting notes did not indicate any decisions or exemptions granted by the SEC. The discussion followed the SEC's temporary Innovation Exemption framework announced on September 17, which allows certain licensed venues to trade tokenized NMS stocks through automated market maker liquidity pools, but does not address pricing and fee issues under the 1940 Act.
Funding flows into tokenized securities trading pairs and liquidity pool construction are driven by the need for regulatory clarity to support products like FOBXX in on-chain pairing, benefiting Franklin Templeton, which has positioned itself with the Benji platform and tokenized MMFs, while putting pressure on existing fund structures that rely on traditional pricing rules and exchange definitions.
Franklin Templeton's total AUM is approximately $1.79 trillion, with its tokenized money market fund already reaching several billion in scale. The meeting aimed to promote the use of fund shares as one side of trading pairs or liquidity assets in licensed venues.
Source: Public Information
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Since launching the first U.S. registered blockchain-integrated money market fund FOBXX through the Benji platform in 2021, Franklin Templeton has been continuously expanding its tokenized products, including distribution in Asia through HashKey, collaboration with Ondo on tokenized ETFs, and receiving SEC no-action relief in 2026 allowing traditional funds to hold their tokenized MMFs as cash or collateral. The historical path shows a preference for bringing existing registered products on-chain rather than building crypto-native funds from scratch.
In terms of capital strategy, the company positions FOBXX/BENJI as on-chain cash tools and qualified assets for stablecoin reserves, shifting resources from traditional fund issuance to TSV liquidity pool pairing. The motivation is to leverage the Innovation Exemption for direct exchanges between fund shares and tokenized stocks or stablecoins, thereby bringing cash management capabilities from its $1.79 trillion AUM into on-chain trading and collateral scenarios.
Similar cases include BlackRock's BUIDL and Ondo's USDY tokenized treasury funds, as well as the SEC's parallel advancement of Zoox-style exemption pathways and the Innovation Exemption. Currently, Franklin Templeton is in an expansion phase, moving from product issuance to trading infrastructure, seeking to adapt the 1940 Act framework to pairing trades in non-exchange venues.
This essentially represents regulatory changes and industry chain restructuring: the pricing under the 1940 Act (Section 22(d)/Rule 22c-1) and the definition of investment companies shift from assuming traditional exchanges and manual settlements to adapting to TSVs and liquidity pools. The mechanism allows for limited experimentation under the temporary exemption framework but does not cover fees and pool rights, forcing managers to seek clarity through meetings to convert tokenized fund shares into on-chain liquidity and settlement assets, rather than merely holding products.
ABAB News · Cognitive Law
No exemptions granted, inquiries first
Pricing rules govern trading, not blockchain
Liquidity pools first become investment companies, then discuss securities