London Stock Exchange to accept Bitcoin and Ethereum ETNs

The London Stock Exchange (LSE) has announced that it will begin accepting applications for Bitcoin (BTC) and Ether (ETH) crypto exchange-traded notes (ETNs) in the second quarter of 2024.

On March 11, the exchange confirmed that it will accept applications following the guidelines outlined in the crypto ETF fact sheet. However, the exchange did not provide an exact date when it will start accepting applications.

In the filing, the exchange said crypto ETNs must be physically backed and non-tradable. It must be publicly available and have BTC or ETH as the underlying crypto asset's market value or benchmark.

The exchange also highlighted that the underlying crypto assets must be held “wholly or mainly” in a cold wallet or something similar. In addition, it must be held by a custodian subject to AML laws in the United Kingdom, the European Union, Switzerland or the United States.

The exchange defines ETNs as “debt securities that provide exposure to the underlying asset.” Crypto ETNs allow investors to trade the exchange's trading hours, which track the performance of crypto assets.

ETNs are widely considered a softer alternative to exchange-traded funds (ETFs). Unlike ETFs, ETNs are debt instruments backed by their issuers rather than stocks. ETFs often focus on cryptographic debt strategies that are not readily available in funds.

Related: London Stock Exchange to Create Traditional Trading Platform on Blockchain

Meanwhile, the UK's Financial Conduct Authority (FCA) has also announced that it will not oppose requests from recognized investment exchanges (RIEs) to create a market segment for crypto-backed ETNs. According to the FCA, exchanges can offer these products to “professional investors”, including credit institutions and investment firms that are authorized or regulated to operate in the financial markets.

The financial regulator urged exchanges to ensure adequate supervision and proper protection of investors. The FCA also said that crypto-backed ETNs must meet requirements such as continuous disclosure and as part of the UK listing system.

While the exchange may offer ETNs to institutions, the FCA says they are not eligible for retail investors. The regulator said the sale of crypto-backed ETNs to retail customers remains banned. “The FCA continues to remind people that cryptocurrencies are highly risky and largely unregulated. Investors should be prepared to lose all their money,” the regulator wrote.

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