The London Stock Exchange (LSE) will start trading exchange-traded notes (ETN) backed by Bitcoin and Ethereum. The local financial regulator stated that it wouldn’t object to the creation of crypto-based investment products as long as their issuers met regulatory requirements.
The London Stock Exchange (LSE) announced that in Q2 2024, it’ll start accepting crypto exchange-traded notes (ETN) whose issuers comply with the exchange’s requirements.
An ETN (exchange-traded note) is a type of financial asset that represents a debt obligation. By purchasing ETNs, an investor basically gives their issuer a loan, receiving a promise of repayment in return. Unlike ETFs, exchange-traded notes are less risky as they depend only on the creditworthiness of the issuer.
The LSE will only consider applications for trading in crypto ETNs from issuers that meet these requirements:
- ETNs can only be based on Bitcoin or Ethereum;
- ETNs must not be margin notes, but must be actually backed by assets;
- ETNs must have a market price or other measure of value;
- assets backing crypto ETNs must be held in cold wallets or custodial offline wallets whose custodians should comply with the AML requirements of the United Kingdom, European Union, Switzerland, and the United States.
The LSE defines ETNs as “debt securities which provide exposure to an underlying asset.” Crypto ETNs will allow investors to trade securities that track the performance of crypto-assets during exchange trading hours.
Meanwhile, the Financial Conduct Authority (FCA) said it wouldn’t hinder the creation of crypto exchange-traded notes. However, access to new investment products will only be allowed to “professional investors,” meaning those under the supervision of the financial regulator. Retail investors won’t be able to access crypto-based investment products. The FCA will also ensure that the LSE can provide “sufficient controls” over trading to protect investors, and that crypto ETN issuers meet local regulatory listing requirements.
The FCA approved a tokenization model for investment fund assets in 2023.
