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London Stock Exchange Opens Doors to Bitcoin and Ethereum ETNs

ByDayne Lee

Mar 13, 2024
London Stock Exchange Opens Doors to Bitcoin and Ethereum ETNs

London Stock Exchange Opens Doors to Bitcoin and Ethereum ETNs

The London Stock Exchange (LSE) is set to broaden its financial horizon by welcoming applications for Bitcoin and Ether exchange-traded notes (ETNs) starting in the second quarter of 2024. This initiative, confirmed on March 11, follows the exchange’s commitment to align with the specifications laid out in its newly published Crypto ETN Admission Factsheet. While a precise date for accepting applications remains unspecified, the exchange has laid clear groundwork for what is expected from prospective crypto ETNs.

Crypto ETNs: A Leap Forward for Digital Assets

Crypto ETNs, as defined by the LSE, are debt securities offering exposure to underlying assets, namely Bitcoin and Ether in this context. These financial instruments enable investors to engage with the performance of crypto assets within the regulated environment of the exchange’s trading hours. Unlike ETFs, ETNs are debt instruments backed by their issuers, offering a nuanced investment avenue for those looking to dive into crypto markets without direct asset ownership.

Key Requirements for Crypto ETNs

The LSE has outlined stringent criteria for the admission of crypto ETNs. Key among these is the stipulation that ETNs must be physically backed and non-leveraged, ensuring a direct correlation with the market price or value of Bitcoin or Ether. Furthermore, the underlying crypto assets must predominantly be stored in cold wallets or equivalent secure storage solutions, under the guardianship of custodians compliant with Anti-Money Laundering legislation in recognized jurisdictions such as the UK, EU, Switzerland, or the US.

Regulatory Perspective: The FCA’s Stance on Crypto ETNs

Parallel to the LSE’s announcement, the UK’s Financial Conduct Authority (FCA) conveyed its receptiveness towards Recognised Investment Exchanges (RIEs) creating market segments for crypto-backed ETNs. Highlighting the provision for “professional investors,” the FCA delineates a regulatory framework wherein credit institutions and authorized investment firms can participate in these emerging financial products.

The FCA has emphasized the necessity for exchanges to implement robust controls to safeguard investors, insisting that crypto-backed ETNs adhere to ongoing disclosure requirements and prospectus obligations as per the UK listing regime. However, it remains steadfast in its caution towards retail investors, reiterating the unsuitability of crypto-backed ETNs for this demographic due to inherent risks, maintaining a ban on sales to retail consumers.

CriterionLSE RequirementsFCA Stipulations
BackingPhysically backed, non-leveraged
StoragePredominantly in cold wallets, by compliant custodians
Regulatory ComplianceCustodians under AML laws in UK, EU, Switzerland, or the USExchanges to offer ETNs to professional investors
Investor SuitabilityUnsuitable for retail investors; focus on protection
Regulatory RequirementsAdherence to ongoing disclosure, prospectusesCrypto ETNs to align with UK listing regime

The London Stock Exchange’s forthcoming acceptance of Bitcoin and Ethereum ETNs marks a significant milestone in the integration of cryptocurrency into mainstream financial markets. Coupled with the FCA’s regulatory guidance, this development signals a maturing landscape for crypto investments in the UK, offering new opportunities for professional investors while maintaining a cautious approach towards retail market participation. As the LSE prepares to open its doors to these innovative investment products, the financial community watches keenly, anticipating the impact on the broader adoption and regulation of digital assets.

Featured image credit: Victor Moussa via Adobe Stock

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.

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