London Stock Exchange to Launch Bitcoin Exchange Traded Notes (ETNs) Marketplace in May
The London Stock Exchange (LSE) has made a significant announcement, confirming its plans to launch a marketplace for Bitcoin cryptocurrency Exchange Traded Notes (ETNs) in May. This decision comes after the LSE’s notice earlier this month regarding its intention to permit the trading of crypto ETNs in the second quarter of the year. The move underscores a growing acceptance of cryptocurrencies within traditional financial markets and highlights the evolving regulatory landscape surrounding digital assets.
Regulatory Approval and Guidelines
The UK’s Financial Conduct Authority (FCA) has played a pivotal role in facilitating this development by allowing recognized investment exchanges to establish a listed market segment for ETNs. However, it’s crucial to note that these products will be accessible exclusively to professional investors, aligning with the FCA’s prohibition on the sale of crypto derivatives and ETNs to retail customers enacted in January 2021.
Characteristics of Crypto ETNs
Exchange Traded Notes (ETNs) are debt securities that offer exposure to an underlying asset, with crypto ETNs specifically tracking the performance of a particular crypto asset. To garner FCA approval for listing on the main market and the FCA’s official list, these crypto ETNs must meet stringent criteria. They must be physically backed and non-leveraged, ensuring a reliable valuation of the underlying market price. Additionally, crypto ETNs can only be denominated in Bitcoin or Ethereum and must adhere to strict custody requirements.
Custodial and Security Measures
One of the key prerequisites for FCA approval is the storage of underlying assets in cold storage facilities located in the UK, the European Union, or the US, under the oversight of licensed custodians compliant with the UK’s Anti-Money Laundering Act. In cases where such storage facilities are unavailable, issuers must obtain third-party audit reports and engage regulated custodians to safeguard the assets effectively.
Proposed Start Date and Trading Guidelines
Pending FCA approval, the proposed commencement date for trading ETN securities is slated for 28th May 2024. The LSE has strategically chosen this date to accommodate the maximum number of issuers on the first day of trading, allowing ample time for issuers to prepare documentation for establishing a crypto ETN program. Additionally, issuers have the flexibility to submit up to three different currency lines for the ETNs, and standard admission timelines do not apply due to the unique nature of the product.
The London Stock Exchange’s decision to launch a marketplace for Bitcoin Exchange Traded Notes marks a significant milestone in the integration of cryptocurrencies into traditional financial markets. With regulatory approval pending and stringent guidelines in place, this development underscores the maturation and institutionalization of the crypto ecosystem. As the landscape continues to evolve, investors, issuers, and regulatory authorities will play crucial roles in shaping the future of cryptoasset trading within established financial frameworks.
