The London Stock Exchange (LSE) officially announced on Monday that cryptocurrency exchange-traded notes (ETNs) tracking the price of both Bitcoin (BTC) and Ethereum (ETH) will be launched on May 28. (
Applications can be submitted starting April 8, with listing expected in May, subject to approval by the Financial Conduct Authority (FCA). Investors will need to submit a pre-prospectus and a letter explicitly outlining how they meet the ETN requirements by April 15.
Strict Requirements for Cryptocurrency ETNs
Additionally, these assets will be available only to professional investors, in line with the UK authority, the FCA’s ban on the sale of crypto derivatives and ETNs implemented in 2021.
The regulatory authority continues to believe that cryptoasset-backed ETNs and cryptocurrency derivatives are not suitable for retail consumers. Therefore, the ban on the sale of Bitcoin ETNs and other digital currencies to retail investors remains in place.
It is important to emphasize that ETNs are unsecured debt securities that provide exposure to an underlying asset and are often issued by banks or investment managers. The prices of ETNs fluctuate similarly to stocks. In the specific case of cryptocurrency ETNs, they allow investors to trade securities that track digital assets on the exchange during trading hours.
To gain approval, crypto ETNs must be physically backed, unleveraged, accurately reflect the underlying market value, and must only be based on Bitcoin or Ethereum. Additionally, the underlying assets must be held in cold storage by a custodian licensed for Money Laundering Prevention in the UK, EU, or the US.
Admission and Future Regulations
Furthermore, issuers can list up to three currency variants for their ETNs. Similarly, the London Stock Exchange emphasizes the importance of issuers initiating early discussions with exchange managers to discuss the admission of their proposal, given the unique nature of the product and the established admission guidelines.
This step follows the path of the U.S. Securities and Exchange Commission’s (SEC) approval of spot Bitcoin exchange-traded funds in January, though without a retail investor component.
In its action plan for the next two years, the FCA has set a goal of strengthening measures to tackle abuse in the cryptocurrency market, thereby improving monitoring and intervention systems.
The FCA established new rules for cryptocurrency-linked marketing in October of last year, vowing to take “strong action” against potential violations.
