Tokenize ETF Shares: F/m Investments' Bold SEC Request Could Transform Traditional Finance

In a landmark move that could bridge traditional finance with blockchain innovation, U.S. ETF manager F/m Investments has formally requested SEC approval to tokenize shares of its U.S. Treasury 3-Month Bill ETF (TBIL). This pivotal request, filed in Washington D.C. in early 2025, represents the first formal application for regulatory relief concerning the tokenization of a registered investment company’s ETF shares. The proposal aims to record ownership on a permissioned blockchain ledger, fundamentally altering how ETF shares transfer and settle.

Understanding the Proposal to Tokenize ETF Shares

F/m Investments’ application centers on its U.S. Treasury 3-Month Bill ETF, ticker TBIL. The firm proposes creating digital tokens that represent direct ownership of the ETF’s shares. Crucially, these tokenized shares would maintain identical characteristics to their traditional counterparts. Each token would carry the same CUSIP identifier, shareholder rights, fee structure, voting power, and economic entitlements. The entire structure would operate within the strict regulatory framework of the Investment Company Act of 1940, ensuring continued compliance with decades-old investor protection laws.

The core technological shift involves moving the record of ownership from traditional centralized ledgers to a permissioned blockchain. This distributed ledger technology would enable the near-instantaneous transfer and settlement of ETF shares directly on-chain. The company emphasizes that this is not a new financial product but a technological upgrade to the infrastructure supporting an existing, SEC-registered fund. The move follows years of industry exploration into asset tokenization, marking a significant step from theoretical discussion to formal regulatory engagement.

The Regulatory Landscape and SEC Precedent

The SEC’s response to this request will set a critical precedent for the entire asset management industry. Historically, the SEC has approached crypto-related financial products with caution, approving Bitcoin spot ETFs only after a prolonged and rigorous process. F/m’s proposal differs fundamentally; it does not seek to create a fund holding crypto assets. Instead, it seeks to use blockchain technology to represent ownership in a fund holding U.S. Treasury bills, among the world’s safest assets.

This distinction may influence the SEC’s analysis. The application likely argues that the underlying investment and regulatory obligations remain unchanged, mitigating novel risks. The permissioned blockchain model, as opposed to a public one, offers the SEC greater oversight and control, potentially easing regulatory concerns. The outcome will hinge on the SEC’s assessment of custody, auditability, transparency, and potential systemic risks within this new technological wrapper.

Expert Analysis on Market Impact and Feasibility

Financial technology analysts point to several potential impacts if the SEC grants approval. Firstly, tokenization could dramatically reduce settlement times for ETF transactions. Traditional settlement (T+2) could shift to near real-time (T+0 or T+instant), freeing up capital and reducing counterparty risk. Secondly, it could lower operational and administrative costs associated with share transfer and record-keeping, potentially benefiting investors through lower fees.

Furthermore, blockchain-based ownership records could enable fractional trading of ETF shares in ways not currently practical, increasing accessibility. However, experts also caution about significant hurdles. These include integrating the blockchain system with existing market infrastructure like the DTCC, ensuring robust cybersecurity, and defining clear legal liability in cases of technological failure or fraud. The proposal’s requirement for third-party custody and auditing addresses some of these concerns directly.

Comparative Analysis: Tokenized vs. Traditional ETF Structure

The table below outlines the key operational differences between the proposed tokenized model and the current traditional structure for the TBIL ETF.

Feature	Traditional ETF Shares	Proposed Tokenized ETF Shares
Ownership Record	Centralized ledger (DTCC)	Permissioned blockchain ledger
Settlement Time	T+2 (Trade date plus two days)	Potential for T+0 or instant settlement
Transfer Mechanism	Intermediary-based processes	Peer-to-peer on-chain transfers
Underlying Asset & Rights	U.S. Treasury Bills, Identical for all shares	U.S. Treasury Bills, Identical for all tokens
Regulatory Framework	Investment Company Act of 1940	Investment Company Act of 1940
Custody & Audit	Traditional third-party services	Blockchain-native third-party services

As shown, the economic and regulatory substance of the investment remains constant. The transformation is purely infrastructural. F/m Investments has stressed that board oversight, daily portfolio transparency, and independent custody would all be preserved, aligning with SEC mandates for registered funds.

Broader Implications for the Financial Ecosystem

Approval could catalyze a wave of similar applications from other asset managers, accelerating the tokenization of traditional securities. This trend, often called “TradFi tokenization,” is widely seen as a more immediate use case for blockchain than purely crypto-native assets. Success for TBIL could lead to tokenized versions of equity ETFs, bond funds, and other registered products.

Moreover, it would validate the use of permissioned blockchains in regulated finance, distinguishing them from permissionless public networks. This could encourage further investment in enterprise-grade blockchain solutions from firms like Broadridge, JP Morgan, and Fidelity. The move also intersects with ongoing explorations by central banks into wholesale central bank digital currencies (CBDCs), which could eventually facilitate the settlement of tokenized assets.

Conversely, a rejection or stringent modification by the SEC would signal continued high barriers for blockchain integration in core securities markets. It would likely push innovation toward less regulated corners of finance or overseas jurisdictions with more progressive digital asset frameworks, such as the UK, Singapore, or the EU under its MiCA regulations.

Conclusion

F/m Investments’ formal request to the SEC to tokenize ETF shares of its TBIL fund marks a watershed moment for financial technology. It represents a pragmatic, incremental approach to integrating blockchain within the bounds of existing, robust securities regulation. The proposal maintains the fundamental investor protections of the Investment Company Act of 1940 while promising operational efficiencies through distributed ledger technology. The SEC’s impending decision will provide crucial guidance on whether and how traditional investment vehicles can evolve on-chain. This case will undoubtedly shape the future trajectory of both the ETF industry and the adoption of blockchain in mainstream capital markets, making the outcome essential for investors, regulators, and technologists to monitor closely.

FAQs

Q1: What does it mean to tokenize ETF shares?
Tokenizing ETF shares means creating a digital token on a blockchain that represents legal ownership of a share in an Exchange-Traded Fund. The token is a digital certificate of ownership with the same rights and economic value as a traditional share.

Q2: Is F/m Investments creating a new cryptocurrency?
No. The proposed tokens are not a new cryptocurrency like Bitcoin or Ethereum. They are digital securities representing an existing, SEC-registered ETF. They would trade and settle on a permissioned blockchain, not a public crypto network.

Q3: How would tokenization benefit an investor in the TBIL ETF?
Potential benefits include faster settlement of trades (possibly instantaneous), reduced administrative costs that could lead to lower fees, enhanced transparency of ownership records, and the potential for more flexible, fractional trading.

Q4: What are the main risks or hurdles for this SEC approval?
Key hurdles include the SEC’s assessment of cybersecurity risks, the reliability of the new technological infrastructure, the clarity of custody solutions, the integration with existing market systems, and the prevention of market manipulation or fraud on the new platform.

Q5: If approved, when might investors be able to trade tokenized TBIL shares?
The timeline is uncertain and depends entirely on the SEC’s review process. The review could take several months to over a year. Following approval, F/m would need to build and test the operational infrastructure before launching, making a 2025 launch ambitious but a 2026 or 2027 launch more plausible.

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