London Stock Exchange to accept physically-backed crypto ETN proposals

The London Stock Exchange is willing to soon consider proposals for certain crypto investment products given new guidance from the UK’s Financial Conduct Authority.

But such applications will need to meet a range of criteria.

The exchange giant said Monday in a “market notice” that it would start accepting applications for bitcoin and ether exchange traded notes (ETNs) in this year’s second quarter.

ETNs are debt securities that, in this case, would offer exposure to BTC and ETH. Similar to crypto ETFs in the US and elsewhere, such products let investors trade securities that track their underlying crypto assets on-exchange during London trading hours.

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This comes as the FCA said in a statement Monday that it would not object to so-called recognized investment exchanges creating a market segment for such ETNs.

“These products would be available for professional investors, such as investment firms and credit institutions authorized or regulated to operate in financial markets only,” the FCA said Monday.

The UK regulator had banned the sale, marketing and distribution of crypto-focused derivatives and ETNs to retail consumers in January 2021. The ban for that segment of investors remains in place, the FCA noted.

The London Stock Exchange acknowledged in a crypto ETN admission factsheet that, in light of the FCA’s guidance about crypto assets, admitting such products to trade “may be detrimental” to the exchange’s reputation.

Therefore, proposed bitcoin and ether ETNs must be physically backed, it noted.

The underlying crypto assets must be “wholly or principally held in cold storage,” the exchange added. In cases no such storage exists, the issuer will have to obtain third-party audit reports and secure regulated custodians.

“Given the nature of the product, and the admission guidance set out in this factsheet, standard admission timelines do not apply to crypto ETNs,” the London Stock Exchange said. “Issuers and their advisers should therefore liaise with the Exchange at the earliest opportunity to discuss their proposed admission.”

While the Securities and Exchange Commission approved physically backed bitcoin ETFs in the US in January, the regulator has not yet greenlit spot ether funds.

Coinbase met with the SEC about ether ETFs last week. The US regulator is expected to rule on ETH products proposed by Ark Invest, BlackRock, Fidelity and others in May.

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