The London Stock Exchange (LSE) stipulates that crypto ETNs must be physically backed and non-leveraged. Additionally, these assets must be held by a custodian compliant with Anti-Money Laundering regulations.
After the roaring success of spot Bitcoin ETFs within two months of launch in the US, other global markets have started exploring crypto investment products. The London Stock Exchange (LSE) has recently revealed its plans to start accepting applications for Bitcoin and Ether crypto exchange-traded notes (ETNs) from Q2 2024 onwards.
Confirming this decision on March 11, the exchange outlined the application process based on the guidelines outlined in its Crypto ETN Admission Factsheet. However, the exchange has yet not communicated an exact commencement date for accepting applications.
Exchange-traded notes (ETNs) are basically “debt securities offering exposure to an underlying asset”. Thus, crypto ETNs enable investors to trade securities mirroring the performance of crypto assets. However, these ETNs will trade only during the daily trading hours of the London Stock Exchange.
Compared to exchange-traded funds (ETFs), ETNs are generally viewed as a more flexible alternative. Unlike ETFs, ETNs are debt instruments supported by their issuers rather than a collection of assets. ETFs commonly target complex debt strategies that may not readily align with traditional funds.
According to the factsheet, the London Stock Exchange (LSE) stipulates that crypto ETNs must be physically backed and non-leveraged. They must possess a publicly available market price or value measure of the underlying asset and must be supported by either Bitcoin (BTC) or Ether (ETH).
Furthermore, the exchange emphasized that the underlying crypto assets should be predominantly stored in a cold wallet or a similar secure storage solution. Additionally, these assets must be held by a custodian compliant with Anti-Money Laundering regulations in either the United Kingdom, the European Union, Switzerland, or the United States.
UK’s FCA Gives a Green Signal
Meanwhile, the UK’s top financial regulator – the Financial Conduct Authority (FCA) – announced that it won’t object to requests from Recognised Investment Exchanges (RIEs) in order to establish a market segment for crypto-backed ETNs. The FCA has agreed to offer these products to “professional investors”, including credit institutions and investment firms authorized or regulated to operate in financial markets.
The FCA emphasized the importance of exchanges implementing adequate controls to safeguard investors’ interests. Additionally, crypto-backed ETNs must adhere to requirements such as ongoing disclosure and prospectuses as part of the UK listing regime.
Although exchanges are permitted to offer ETNs to institutions, the FCA emphasized their unsuitability for retail investors due to associated risks. Retail consumers will continue to be prohibited from purchasing crypto-backed ETNs, according to the regulator.
“The FCA continues to remind people that cryptoassets are high risk and largely unregulated. Those who invest should be prepared to lose all their money,” said the regulator.
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