London Stock Exchange to accept Bitcoin and Ethereum ETNs

The Financial Conduct Authority of the United Kingdom declared that it is not opposed to proposals to establish a market niche for exchange-traded notes backed by cryptocurrency. In the second quarter of 2024, the London Stock Exchange (LSE) will begin to accept applications for exchange-traded notes (ETNs) backed by cryptocurrencies such as Bitcoin and Ether.

The exchange declared on March 11 that it would accept applications as long as they adhered to the rules outlined in its Crypto ETN Admission Factsheet. exchange must still specify the specific date on which it will begin to take applications, though.

The exchange stated in the datasheet that cryptocurrency ETNs need to non-leveraged and physically backed. They must secured by Bitcoin or Ether and have a publicly known market price or value measure of the underlying asset. The exchange made it clear that the underlying cryptocurrency assets were to kept “wholly or principally” in a cold wallet or a comparable setting. Furthermore, a custodian holding the assets ought to bound by anti-money laundering regulations in the US, the UK, the EU, or Switzerland.

Debt securities that offer exposure to an underlying asset is how the exchange describes ETNs. Securities that track the performance of cryptocurrency assets can traded by investors using crypto exchange-traded notes (ETNs) during trading hours.

Many perceive exchange-traded notes (ETNs) as a softer substitute for ETFs. Unlike ETFs, an ETN is not a pool of assets; instead, its issuers back it as a debt instrument.ETFs generally focus on unfamiliar debt techniques that are difficult to integrate into funds.

FCA Allows Exchange to Offer Crypto-Backed ETNs to Professional Investors

The Financial Conduct Authority (FCA) of the United Kingdom recently declared that it is not going to object to requests from Recognized Investment Exchanges (RIEs) to establish a market segment for ETNs backed by cryptocurrency. The FCA asserts that exchanges have the right to market the products to “professional investors,” which comprise financial institutions and investment businesses registered or authorized to operate in the financial markets.

The financial watchdog also asked exchanges to make sure they had enough regulations in place to sufficiently safeguard investors. The FCA further stated that to comply with the U.K. listing regime, crypto-backed ETNs must provide prospectuses and continuous disclosure.

While exchanges can provide ETNs to institutions, the FCA has determined that they are unsuitable for ordinary investors due to their risks. The regulator stated that selling crypto-backed ETNs to ordinary investors will remain prohibited. “The FCA continues to caution individuals that cryptoassets are high-risk and mostly unregulated. “Those who invest should expect to lose all of their money,” the regulator wrote.