Tokenize ETF Shares: F/m Investments’ Bold SEC Proposal Could Transform Traditional Finance

In a landmark move for financial innovation, U.S. ETF manager F/m Investments has formally requested regulatory approval to tokenize ETF shares, specifically for its U.S. Treasury 3-Month Bill ETF (TBIL). This pivotal request, submitted to the U.S. Securities and Exchange Commission (SEC) in early 2025, represents the first formal application seeking relief for the tokenization of a registered investment company’s exchange-traded fund shares. Consequently, this proposal could bridge the established world of regulated securities with the evolving potential of distributed ledger technology.

Decoding the Proposal to Tokenize ETF Shares

F/m Investments’ detailed submission outlines a plan to record share ownership of its TBIL ETF on a permissioned blockchain ledger. This structure would fundamentally alter the mechanics of share transfer and settlement. Instead of relying solely on traditional clearinghouses, these processes would occur on-chain. The company emphasizes that this technological shift would not change the fundamental nature of the security. Each tokenized share will maintain identical characteristics to its traditional counterpart.

• Identical Rights: The same CUSIP identifier, voting power, and economic entitlements.
• Regulatory Compliance: Full operation within the Investment Company Act of 1940 framework.
• Oversight Preserved: Continued board governance, daily portfolio transparency, and independent third-party custody and auditing.

This approach aims to enhance efficiency and accessibility while upholding the stringent investor protections of traditional funds. The permissioned ledger model, distinct from public blockchains like Ethereum, allows for controlled participation, addressing common regulatory concerns around security and anti-money laundering controls.

The Broader Context of Asset Tokenization

F/m’s initiative does not exist in a vacuum. It arrives amid a significant global trend toward the tokenization of real-world assets (RWA). Major financial institutions, including BlackRock and JPMorgan, have actively explored blockchain-based systems for bonds, private equity, and money market funds. However, applying this technology to a publicly traded, SEC-registered ETF within the U.S. regulatory perimeter marks a new frontier. The table below contrasts traditional and proposed tokenized ETF mechanics:

This move follows the SEC’s approval of spot Bitcoin ETFs in January 2024, which demonstrated a cautious but evolving regulatory stance toward cryptocurrency-adjacent products. F/m’s request tests a different angle: using blockchain as a superior infrastructure for traditional securities, not merely as the basis for a novel asset.

Expert Analysis on Regulatory Hurdles and Potential

Legal experts following the SEC’s digital asset agenda note the significance of the request’s structure. “F/m is not asking to create a new product,” explains a former SEC attorney specializing in investment management. “They are asking for relief to use a new technological method for recording ownership of an existing, fully compliant product. This distinction is crucial. It frames blockchain as a utility, not the source of the asset’s value.” The firm’s emphasis on maintaining all existing investor protections and oversight mechanisms appears designed to alleviate common SEC concerns about market integrity and investor protection.

Market analysts highlight potential impacts should the SEC grant approval. Primary benefits could include reduced operational costs, decreased settlement risk, and the possibility of 24/7 trading infrastructure. For investors, the most tangible early benefit may be the potential for fractional share ownership, making precise treasury bill exposure more accessible. However, the path forward involves rigorous scrutiny. The SEC will likely examine cybersecurity protocols, node governance of the permissioned ledger, interoperability with existing market infrastructure, and precise custody arrangements in extreme detail.

Implications for the ETF and Digital Asset Industries

The approval of this request would create a powerful precedent. Other ETF issuers could follow with similar applications for equity, fixed-income, or commodity-based funds. This could accelerate a industry-wide technological upgrade. Furthermore, it would establish a regulated blueprint for merging traditional finance with blockchain rails. Success here could spur more innovation in areas like programmable dividends or automated compliance checks embedded in the tokens themselves.

Conversely, a rejection or a request for significant modifications would signal the SEC’s current limits on integrating distributed ledger technology into core securities markets. It would clarify the regulatory boundaries for other asset managers exploring similar concepts. The decision will serve as a critical indicator of whether U.S. financial regulation views blockchain primarily as a speculative threat or a viable operational improvement.

Conclusion

F/m Investments’ formal request to tokenize ETF shares represents a calculated and historic test of U.S. financial regulation’s adaptability. By seeking to apply blockchain technology to the bedrock of short-term government debt exposure through the TBIL ETF, the firm is pushing for a future where market efficiency and technological innovation coexist within a strong regulatory framework. The SEC’s response will not only determine the fate of this specific proposal but will also chart a course for the entire convergence of traditional finance and digital asset infrastructure. The move to tokenize ETF shares could ultimately redefine how ownership is recorded, transferred, and settled across global markets.

FAQs

Q1: What does it mean to tokenize an ETF share?
Tokenization means creating a digital representation of an asset on a blockchain. For an ETF share, it involves issuing a digital token that corresponds to and confers the same ownership rights as a traditional share, but with ownership recorded and transfers processed on a distributed ledger.

Q2: How is F/m’s proposal different from a Bitcoin ETF?
A Bitcoin ETF holds Bitcoin as its underlying asset. F/m’s proposal involves taking an existing traditional ETF (which holds U.S. Treasury bills) and using blockchain technology to record ownership of its shares. The underlying asset remains U.S. government debt, not cryptocurrency.

Q3: What is a permissioned blockchain ledger?
A permissioned ledger is a blockchain network where participation is controlled. Only approved entities (like regulators, the issuer, authorized custodians, and brokers) can operate nodes or validate transactions. This contrasts with public, permissionless blockchains like Bitcoin, which are open to anyone.

Q4: Would tokenized ETF shares be more risky for investors?
According to F/m’s proposal, the tokenized shares would have the same protections as traditional shares, including board oversight, daily transparency, and third-party custody. The primary risk shift would be technological, relating to the security and resilience of the new blockchain infrastructure, which the SEC will rigorously assess.

Q5: Could this lead to fractional ownership of ETF shares?
Yes, one of the inherent potentials of blockchain-based tokens is divisibility. While the initial proposal may start with whole-share tokens, the technology could eventually enable investors to own precise fractions of a share, increasing accessibility and investment flexibility.