Key takeaways:
- LSE has confirmed plans to begin accepting applications for Bitcoin and Ethereum ETNs.
- FCA implements strong controls for crypto ETNs, prioritizing market integrity and investor protection.
The London Stock Exchange (LSE) has announced its intention to potentially list Bitcoin and Ethereum exchange-traded notes (ETNs) by the second quarter of this year, as indicated in a market notice released on March 11.
This move reflects a significant step towards mainstream adoption of cryptocurrencies within traditional financial markets.
ETNs, similar to exchange-traded funds (ETFs), are issued by banks or investment managers and are essential for tracking underlying assets or indexes. Unlike ETFs, which involve investing in a fund holding the assets it tracks, ETNs offer a bond-like investment avenue.
While the start date remains undisclosed, the criteria stipulate that the crypto ETNs must be physically backed, non-leveraged, and have publicly available market prices or value measures for BTC or ETH.
The decision by the LSE to embrace crypto-tracking ETNs aligns with guidance from the UK’s Financial Conduct Authority (FCA), signaling a shift towards accommodating institutional investors in the crypto space.
While the FCA has urged exchanges to ensure sufficient controls and investor protection measures are in place for crypto-backed ETNs, it remains cautious about the risks associated with cryptocurrencies.
As such, the LSE will only offer these products to professional investors, in line with the FCA’s prohibition on selling crypto derivatives and ETNs to retail consumers.
According to the LSE’s criteria, underlying crypto assets must be stored primarily in secure methods like cold storage and held by custodians adhering to anti-money laundering (AML) laws in UK, EU, Switzerland, or US jurisdictions.
The exchange emphasizes that the underlying crypto assets should be “wholly or principally” held in a cold wallet or similar secure storage.
Crypto ETNs will enable investors to trade securities tracking the performance of crypto assets during the exchange’s trading hours, offering exposure to the cryptocurrency market within a regulated framework
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In conclusion, the London Stock Exchange’s decision to list Bitcoin and Ethereum ETNs represents a significant milestone in the integration of cryptocurrencies into traditional financial markets. While offering new opportunities for institutional investors, it also highlights the need for regulatory oversight and investor protection measures in the rapidly evolving crypto landscape.
