LSE Embraces Bitcoin and Ethereum ETNs

The London Stock Exchange (LSE) is preparing to accept applications for Bitcoin and Ether crypto exchange-traded notes (ETNs) in the second quarter of 2024. In accordance with the guidelines outlined in its crypto ETF fact sheet, the exchange has confirmed that it will start reviewing applications, although it has not specified the exact date. The fact sheet mandates that crypto ETNs must be physically backed, non-leveraged, and have a publicly available market price or value measure for the underlying assets, which must be BTC or ETH. The underlying crypto assets must also be predominantly held in a cold wallet or similar storage system and be held by a custodian subject to AML laws in certain jurisdictions.

ETNs, as defined by the exchange, are debt securities that provide exposure to an underlying asset. They allow investors to trade securities that mirror the performance of crypto assets during the exchange’s trading hours. Unlike exchange-traded funds (ETFs), which are typically asset-backed, ETNs are debt instruments backed by their issuers. This makes ETNs a popular choice for tracking the performance of assets that don’t easily fit into funds with traditional debt strategies.

The Financial Conduct Authority (FCA) in the United Kingdom has also announced that it will not oppose requests from Recognised Investment Exchanges (RIEs) to create a market segment for crypto-backed ETNs. These products will be available to professional investors, such as authorized credit institutions and investment firms. The FCA emphasizes the need for sufficient controls and investor protection measures. The crypto-backed ETNs must meet requirements for ongoing disclosure and prospectuses under the U.K. Listing Regime.

While ETNs can be offered to institutions, the FCA categorizes them as unsuitable for retail investors due to their risks. Therefore, selling crypto-backed ETNs to retail consumers will remain prohibited. The FCA repeatedly reminds individuals that crypto assets are highly risky and largely unregulated, and investing in them carries the possibility of losing all invested funds.

Odell Tennant

Odell Tennant

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