Franklin Templeton Explores SEC Exemption to Facilitate Tokenized Fund Trading Through Blockchain Liquidity Pools

October 10: Franklin Templeton yesterday discussed regulatory issues regarding tokenized fund trading with staff of the U.S. Securities and Exchange Commission (SEC) Crypto Task Force, exploring whether regulatory exemptions could allow tokenized money market funds and ETFs to trade on blockchain trading platforms and in liquidity pools.

The topics discussed included: whether investors could exchange tokenized money market fund shares for tokenized stocks or ETFs through trading pairs; whether liquidity providers could charge service fees; and whether the relevant liquidity pools would need exemptions from certain provisions of the Investment Company Act, the Securities Act, and the Securities Exchange Act. Current rules impose clear requirements on fund share trading prices, pricing times, and trading venues, which may limit such on-chain trading models.

The SEC launched an innovation exemption mechanism on September 17, allowing eligible blockchain platforms to conduct limited tokenized stock trading under conditions such as trading volume limits, shareholder rights protections, and smart contract audits. Franklin Templeton's exploration this time further extends the regulatory discussion to tokenized fund shares and on-chain liquidity pools, but the relevant exemptions have not yet been approved.