The SEC issued a no-action letter allowing Franklin Templeton’s registered mutual funds and ETFs to invest in its tokenized BENJI fund. The relief exempts Franklin from specific physical cust
Franklin Templeton’s traditional mutual funds and exchange-traded funds can now hold shares of the firm’s blockchain-based government money market fund, after the U.S. Securities and Exchange Commission issued a no-action letter on August 12, 2026. The relief, granted by the SEC’s Division of Investment Management, clears a regulatory obstacle that had kept Franklin’s conventional registered funds from putting cash directly into the Franklin OnChain U.S. Government Money Fund, known by its ticker FOBXX and its token name BENJI. Registered funds can now use BENJI shares for cash management and as collateral in securities lending, without satisfying three specific provisions of Rule 17f-2 under the Investment Company Act of 1940 that were written for physical vault custody.
A no-action letter carries a narrow legal meaning. It signals that SEC staff will not recommend enforcement action under the described circumstances, not that the Commission has formally approved the arrangement. The letter itself makes this distinction explicit: it reflects the staff’s position on potential enforcement, does not create a new rule, and leaves Franklin Templeton and its funds fully responsible for complying with securities law otherwise. What changes in practice is that the funds no longer need to meet paragraphs (b), (e) and (f) of Rule 17f-2, provisions built around certificated securities sitting in a vault rather than tokens sitting on a public ledger.
FOBXX runs on a dual-layer record system rather than treating the blockchain as the sole source of truth. The Stellar network records transactions, net asset values and dividend distributions, but it does so anonymously. Franklin Templeton Investor Services, the fund’s affiliated transfer agent, maintains the official book-entry shareholder file with the personal data that never touches the chain, including Social Security numbers and dates of birth, then links the two records to build the master security holder list.
FTIS creates and controls a segregated Stellar wallet for each participating fund. Private keys sit behind multi-signature and multi-party computation setups, with signers spread across locations and offline recovery options built in. That control matters for the SEC’s comfort level: if a key gets lost, tokens go missing, or an operational error slips through, FTIS can freeze, correct or restore the record rather than leaving the fund stuck with whatever the blockchain shows. Independent public accountants have to verify FTIS’s books against both the investing fund and BENJI at least three times a year, and at least two of those checks arrive unannounced.
Launched 2021 First registered mutual fund on a public blockchain Management fee 0.15% Among the lowest of any tokenized treasury fund Chains supported 9 Stellar, Ethereum, Polygon, Avalanche, Arbitrum, Aptos, Base, Solana, BNB Smart Chain Stellar value, Aug 5 2026 $726.7M 7-day yield: 3.56% Platform-wide AUM ~$2.45B Across all nine chains, mid-2026 Franklin Templeton total AUM $1.80T As of July 31, 2026SEC staff didn’t invent a new framework to justify this relief. They pointed to a 1992 no-action letter granted to an affiliated Franklin entity, which allowed book-entry share arrangements in place of physical certificates for master-feeder fund structures. The logic carries forward largely unchanged: because FTIS retains centralized control over the private keys and the official ledger today, staff treated the blockchain-based system as functionally equivalent to that decades-old book-entry model, just running on different infrastructure.
Franklin picked Stellar in 2021 partly because the network bakes issuer controls, such as authorization and clawback, directly into its base ledger rather than requiring custom smart contracts layered on top. Sandy Kaul, Franklin Templeton’s Head of Digital Assets and Innovation, has pointed to the cost side of that choice: she has said that shifting a batch of 50,000 transactions onto Stellar cut processing costs from roughly $75,000 down to about $1.13. That fee structure is a large part of how BENJI sustains its 0.15% management charge while still settling trades and updating valuations far faster than a traditional overnight cycle.
The practical upside for Franklin’s conventional funds centers on speed. BENJI supports hourly net asset value calculations and intraday trading instead of the end-of-day or monthly processing that governs most cash sweep arrangements. A fund parking idle cash in FOBXX can redeem it and redeploy it the same day rather than waiting on settlement cycles built for paper securities.
There’s already a live example of BENJI functioning as collateral outside Franklin’s own fund family. Since February 2026, Franklin Templeton and Binance have run an institutional off-exchange collateral program in which eligible clients pledge BENJI-issued shares through Ceffu’s custody layer while trading on the exchange, earning yield on the collateral instead of letting it sit idle. The newly cleared registered funds don’t automatically get access to that specific program, but it shows the operational rail already carrying real volume before this week’s letter arrived.
Tokenized Government Money Funds — AUM, May 2026 USYC — Hashnote$3.0B BUIDL — BlackRock / Securitize$2.5B USDY — Ondo Finance$2.1B BENJI — Franklin Templeton$828MOUSG — Ondo Finance$625MThe SEC was careful to frame the letter as fact-specific to Franklin’s particular custody arrangement, not a general rule other issuers can rely on automatically. Still, it hands the industry a working template: pair a public blockchain for transaction records with a centralized transfer agent that retains key control and audit obligations, and staff will treat it as close enough to a book-entry structure to skip physical custody rules. Tokenized government money funds across all issuers reached roughly $22 billion in combined assets by May 2026, up about 75% from a year earlier, and BlackRock, Ondo and Hashnote all run comparable structures that could seek similar relief now that the SEC has shown what satisfies it.
Set against Franklin Templeton’s own balance sheet, BENJI still barely registers. The firm closed July with $1.80 trillion in total assets under management, meaning even a full internal shift of cash-management flows into FOBXX would move a small fraction of the group’s book. What the letter really buys Franklin is the plumbing: an approved path for shifting operational cash onto a settlement rail that runs faster than the one every other fund in its lineup still depends on, available whenever the firm decides to widen its use beyond this initial group of funds.
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