The London Stock Exchange (LSE) is gearing up to broaden its financial product offerings by incorporating crypto exchange-traded notes (ETNs) for Bitcoin and Ether.
This significant development is set to unfold in the second quarter of 2024, with the LSE poised to start receiving applications for these novel ETNs.
The announcement made on March 11 delineates a strategic move towards embracing the burgeoning realm of cryptocurrency within the established frameworks of traditional financial markets.
The LSE has outlined specific criteria for the admission of crypto ETNs in its recently published Crypto ETN Admission Factsheet.
Although an exact commencement date for accepting applications has not been disclosed, the exchange has made clear its requirements.
For an ETN to be considered, it must be physically backed by Bitcoin or Ether and refrain from leveraging.
A critical stipulation is the transparent availability of the market price or value of the underlying crypto asset.
Furthermore, the crypto assets backing the ETNs must be securely stored, preferably in cold wallets, and the custodians of these assets must comply with Anti-Money Laundering legislation from the UK, EU, Switzerland, or the US.
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ETNs, defined by the exchange as debt securities linked to an underlying asset, offer investors an opportunity to engage with the performance of cryptocurrencies within regulated trading hours.
This method presents a less direct approach compared to exchange-traded funds (ETFs), with ETNs being backed by issuer’s credit rather than a collective pool of assets, and is viewed as a softer alternative for those seeking exposure to crypto assets.
Parallel to the LSE’s initiative, the UK’s Financial Conduct Authority (FCA) has also indicated a willingness to accommodate Recognised Investment Exchanges (RIEs) wishing to establish market segments for crypto-backed ETNs, albeit restricted to professional investors.
This category encompasses authorized or regulated credit institutions and investment firms.
The FCA emphasizes the need for stringent controls to safeguard investors and mandates adherence to the UK’s listing regime, including ongoing disclosure and the provision of prospectuses.
Despite this openness towards institutional engagement with crypto-backed ETNs, the FCA maintains a cautious stance towards retail investors, citing the high-risk nature of cryptoassets.
The authority has reiterated its position that such investments are not suitable for the retail market, warning of the potential for total loss and underscoring the largely unregulated status of cryptoassets.
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