Shearman & Sterling | Fintech 2020 | Franklin Templeton Files Preliminary Prospectus for Blockchain-Based Money Market Fund
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  • Franklin Templeton Files Preliminary Prospectus for Blockchain-Based Money Market Fund
    Franklin Templeton Investments will offer what may be the first money market fund to record share ownership using blockchain technology.

    In a registration statement on Form N-1A filed on September 3, 2019, the asset manager said it will register shares of the Franklin Blockchain Enabled U.S. Government Money Fund.  The fund will aim to maintain a stable $1.00 share price and will invest at least 99.5% of its total assets in U.S. government securities, cash and repurchase agreements fully collateralized by U.S. government securities and cash.  The fund, however, will not invest in digital assets.

    Although shares of the fund will be recorded on the blockchain, the fund’s transfer agent will maintain the official record of share ownership in book-entry form.  The filing also clarifies that the transfer agent’s records will be determinative in the event of any discrepancies between the transfer agent’s records and the blockchain-based records.

    The filing states that Franklin Templeton believes that “blockchain-based shares will provide increased transparency to Fund shareholders and may, in the future, permit reduced settlement times and provide other benefits to Fund shareholders.”  It adds that the ownership of the fund’s shares could eventually be maintained and recorded solely on the Stellar network, “although there is no guarantee that this will occur.”

    However, the filing also notes several potential risks associated with recording shares of the fund on the blockchain, including regulatory uncertainty, potential technical flaws, potential for hacks or breaches, new technologies that may inhibit access to the network and potential loss of public trust.  The filing added that these risks may result in the fund failing to achieve market acceptance, under which circumstances Franklin Templeton may decide to restructure or liquidate the fund.