Franklin Templeton has obtained no-action relief from staff at the U.S. Securities and Exchange Commission (SEC) for a proposed custody arrangement involving shares of its Franklin OnChain U.S. Government Money Fund. The relief permits participating registered funds to utilize the blockchain-based money market fund for cash management and as collateral for securities lending.

The SEC's Division of Investment Management issued the no-action position in response to Franklin Templeton's proposed structure. The arrangement centers on the Franklin OnChain U.S. Government Money Fund, commonly associated with the ticker FOBXX, whose ownership records are maintained through a system that combines conventional recordkeeping with blockchain technology. The fund has been recognized as one of the first U.S.-registered mutual funds to use a public blockchain to process transactions and record share ownership.

Under the SEC staff's position, participating funds may use FOBXX for cash management and securities lending collateral while recording ownership through Franklin Templeton's blockchain-integrated system, rather than relying exclusively on rules designed for physical or certificated securities. Notably, the relief extends beyond Franklin Templeton's own fund complex, allowing other registered fund groups to adopt FOBXX for their institutional cash management workflows. The decision also permits Franklin Templeton Investor Services (FTIS) to serve as custodian for participating funds without complying with certain requirements under Rule 17f-2, which were originally developed for traditional securities custody arrangements.

Blockchain Records Support Fund Operations

The OnChain Fund is a registered government money market fund whose official shareholder records are maintained through a hybrid system combining Franklin Templeton's internal records with blockchain technology. The blockchain component records several aspects of fund activity, including purchases, redemptions, dividend distributions, net asset values, and trade information. FTIS retains control over the official ownership record, creating a structure in which blockchain technology supports transaction processing while conventional recordkeeping remains an integral part of the custody framework.

Franklin Templeton stated that the arrangement could provide participating funds with greater flexibility in managing cash and securities lending collateral. The structure is also expected to support more frequent valuation and trading capabilities than traditional fund processes. The company identified hourly net asset value calculations, intraday trading, and faster transaction processing among the potential benefits. The blockchain-based structure could additionally help reduce operating expenses by streamlining certain processes associated with fund transactions and recordkeeping.

The proposed framework could give institutional users access to faster fund transactions, hourly net asset values, and intraday trading while expanding the practical application of blockchain technology in traditional asset management. The effort forms part of a broader industry trend, with major asset managers including BlackRock, which launched its tokenized BUIDL fund on Ethereum, and WisdomTree exploring similar blockchain-based fund structures aimed at improving settlement speed, transparency, and operational efficiency.

Stellar-Based Custody Infrastructure

Under the proposed arrangement, FTIS will establish a separate digital wallet on the Stellar network for each participating fund. FTIS will retain control of the associated private keys and operate security measures designed to protect the assets and transaction infrastructure.

The security framework includes multisignature technology, multiparty computation, distributed signers, and offline recovery capabilities. These measures are intended to mitigate risks associated with concentrating control over digital assets or relying on a single mechanism for transaction authorization and recovery.

The SEC staff's no-action position is subject to several safeguards. Each participating fund must maintain a separate wallet, and all transactions must be reconciled daily. Additional requirements cover authentication controls, oversight by fund boards, and independent verification.

NEW: The @SECGov's Division of Investment Management has issued a no-action letter to @FTDA_US, clearing the way for its registered funds to use its onchain money market fund ($FOBXX) to manage cash, including collateral for securities lending.

The relief allows Franklin… pic.twitter.com/4TFQ2vqy8X

— Eleanor Terrett (@EleanorTerrett) August 12, 2026

At least three independent accountant verifications are required during each fiscal year, adding another layer of review to the blockchain-supported custody arrangement.

SEC Relief Comes With Important Limitations

The SEC staff made clear that the no-action letter carries limited legal effect. It represents the staff's position regarding potential enforcement under the circumstances described in the request and does not establish a new rule or regulation. The position also does not constitute formal SEC approval of the arrangement. Franklin Templeton and participating funds therefore remain responsible for complying with all applicable securities laws and other regulatory requirements.

The decision marks another step in the integration of blockchain infrastructure with regulated investment products, potentially establishing a model for faster and more flexible fund operations while retaining conventional ownership controls and regulatory safeguards. Whether other fund complexes pursue similar relief and how widely institutional investors adopt tokenized money market instruments for collateral and cash management are likely to shape the next phase of blockchain integration in asset management. For Franklin Templeton, the SEC staff position provides additional flexibility for deploying its onchain money market fund within institutional cash management and securities lending operations.