Franklin Templeton representatives met with staff of the Securities and Exchange Commission’s Crypto Task Force on October 9 to discuss trading tokenized money-market-fund shares against tokenized NMS stocks, according to the agency’s meeting memorandum. The agenda also raised whether liquidity providers could collect service fees without relief from Section 22(d) and Rule 22c-1.
The discussion puts the focus on the operating rules around tokenized funds, rather than solely on putting fund shares on blockchain rails. It concerned how such shares could work as one side of transactions and as assets supplied to liquidity arrangements on permissioned venues handling tokenized securities.
Franklin Templeton’s October 9 SEC agenda
The memorandum frames the money-market-fund question around Tokenized Securities Venues, or TSVs, and tokenized NMS stocks. NMS stocks are securities covered by the National Market System. The document does not state that the Commission reached a decision or granted the relief discussed.
Section 22(d) and Rule 22c-1 appeared on the agenda in connection with potential service fees for liquidity providers. That is a distinct issue from whether a tokenized fund share can be used in a trading pair: the meeting materials consider both the pairing of assets and the economic role of firms providing liquidity.
Franklin Templeton’s participation is notable because the questions extend to the mechanics of an investment product after tokenization. The SEC memorandum identifies a set of regulatory issues that can arise when fund shares are intended to circulate in a trading venue structure, including through liquidity-provider activity, rather than simply be recorded in a new format.
Trading pairs expose a venue-status problem
Staff and Franklin Templeton also discussed tokenized NMS exchange-traded funds trading against tokenized stocks, permitted payment stablecoins or tokenized money-market funds. The agenda asked whether additional relief might be required because a TSV is not a national securities exchange.
That venue-status question is central to the scope of the discussion. A platform may be permissioned and handle tokenized versions of securities, but the memorandum specifically distinguishes a TSV from a national securities exchange when considering the potential need for further relief.
The possible trading pairs cover more than one route for settlement or liquidity. They include tokenized stocks paired with tokenized ETFs, with permitted payment stablecoins and with tokenized money-market funds. The SEC record does not indicate which, if any, pairing or venue model the agency would ultimately permit.
Liquidity pools create separate fund and securities questions
The October 9 agenda also examined liquidity-pool mechanics. It contemplated participants depositing specified tokenized assets and receiving liquidity-provider, or LP, interests in return.
That structure generated two classification questions in the meeting materials: whether the pools could be treated as investment companies, and whether LP interests could be treated as securities. Those questions concern the pool and the interest received by a participant, not merely the tokenized assets contributed to it.
The distinction matters for the agenda’s broader market-structure focus. A tokenized money-market fund could potentially appear as an asset in a pool or a trading pair, while the arrangement used to provide liquidity may raise separate issues under the federal securities and investment-company framework.
The meeting tests the limits of the Innovation Exemption
The Franklin Templeton discussion followed the SEC’s September 17 temporary Innovation Exemption. The agency said the exemption permits certain permissioned venues to use automated-market-maker liquidity pools for trading tokenized NMS stocks and provides conditional relief to certain liquidity providers.
The October meeting agenda suggests that the initial framework did not answer every practical question raised when tokenized funds, ETFs and stablecoins are added to the venue design. In particular, it addressed fund-pricing-rule relief for liquidity-provider fees, the status of venues that are not national securities exchanges, and potential treatment of pools and LP interests.
An independent report by TokenPost similarly characterized the meeting as covering blockchain trading venues, tokenized ETFs and stocks, stablecoin and tokenized-fund trading pairs, liquidity-provider fees, and possible Investment Company Act exemptions for liquidity pools. The SEC memorandum remains the primary account of the meeting’s agenda.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
