Franklin Templeton clears SEC hurdle for ETFs that turn dividends into bitcoin

Franklin Templeton has taken the final regulatory step before launching two exchange-traded funds that convert stock dividends into bitcoin, filing a Form 8-A with the US Securities and Exchange Commission on October 22 to register shares for trading on Nasdaq. A prospectus filed the same day lists an effective date of October 27, according to Bitcoin Magazine.

The Franklin US Equity Bitcoin DRIP Index ETF, ticker FBEQ, tracks the VettaFi US Large-Cap 500 Bitcoin DRIP Index, which holds the 500 largest US companies by market capitalisation and, at inception, allocates 95% to those stocks and 5% to bitcoin. Each dividend paid by the constituent companies, regular or special, is reinvested into bitcoin at the market open on the day after the ex-date, so the bitcoin share of the portfolio grows with every payment. The second fund, the Franklin US Innovation Bitcoin DRIP Index ETF, applies the same mechanic to the 100 largest non-financial companies listed on Nasdaq.

The structure differs from a conventional dividend reinvestment plan, which buys more shares of the company that paid the dividend. Franklin's version routes the cash into bitcoin, giving holders exposure without an exchange account, wallet or custody decision. The bitcoin position is capped: at each quarterly rebalance an allocation above 5% is trimmed to 4.5%, and if bitcoin exceeds 20% of the index between rebalances it is cut back to 4.5% within two business days, with proceeds returned to stocks. The ETF does not hold bitcoin on-chain, gaining exposure instead through bitcoin exchange-traded products, including Franklin's own spot fund, futures and options, or depositary receipts, in some cases via a Cayman Islands subsidiary.

FBEQ carries a 0.09% expense ratio with no 12b-1 fee. Franklin Advisory Services manages the fund, with Franklin Templeton Institutional as sub-adviser, and Dina Ting, Hailey Harris, Joe Diederich and Basit Amin serve as portfolio managers. The filings for both funds arrived in June without tickers or fees; four months later the details are in.

The launch extends a digital asset push by the firm, which filed for a spot bitcoin ETF in September 2023 and launched it as EZBC in January 2024, and in April acquired 250 Digital and formed Franklin Crypto, an institutional digital asset division. Chief executive Jenny Johnson has argued that blockchains threaten Wall Street's fee structure more than its technology. The prospectus warns that investors can lose money and that bitcoin's price swings may affect the fund's net asset value. Whether that trade-off appeals to the audience Franklin Templeton is targeting will become clear after October 27.