On Monday, March 11, the London Stock Exchange (LSE) announced its readiness to accept applications for the admission of Bitcoin and Ethereum Exchange Traded Notes (ETNs) starting in the second quarter of 2024. This decision follows the UK’s Financial Conduct Authority (FCA) decision to allow crypto asset-backed exchange-traded notes.
LSE To Accept Bitcoin And Ethereum ETNs
According to the LSE’s notice, “This decision facilitates on-exchange trading of securities that track the performance of crypto assets during London trading hours, providing investors with a regulated instrument to gain exposure to Bitcoin and Ethereum.”
The Exchange has outlined stringent requirements for the admission of these crypto ETNs, emphasizing the importance of physical backing like the US spot ETFs, non-leveraged structures, and the necessity for the underlying crypto assets to have a reliable and publicly available market price. “The proposed Crypto ETN must be physically backed, i.e., non-leveraged, and have a market price or other value measure of the underlying that is reliable and publicly available,” the factsheet specifies.
Furthermore, the LSE mandates that the underlying crypto assets be predominantly held in ‘cold storage’ or under equivalent security arrangements, and custody must be undertaken by entities compliant with AML regulations in specified jurisdictions. “The underlying crypto assets must be wholly or principally held in ‘cold storage’, which includes cold staking, or subject to arrangements that achieve an equivalent outcome to cold storage,” the LSE detailed, highlighting the importance of security in the custody of crypto assets.
The notice also makes it clear that the LSE reserves the right to refuse any application for the admission of crypto ETNs, stressing the exchange’s commitment to maintaining the integrity of its market. “Notwithstanding that an issuer might be able to demonstrate all of the factors referred to above, the Exchange reserves the right and has full discretion to refuse an application for admission of any Crypto ETNs.”
Designed exclusively for professional investors, these ETNs represent a controlled expansion into the Bitcoin and crypto sector within a strict regulatory framework aimed at mitigating the inherent risks of crypto asset volatility and security issues. The LSE’s approach aligns with the FCA’s ban on selling crypto derivatives and ETNs to retail consumers, indicating a cautious yet progressive stance towards crypto integration into traditional financial markets.
Prospective issuers are encouraged to engage with the LSE at an early stage to facilitate the admission process. The Exchange’s emphasis on early engagement aims to “mitigate the risk of delay in the admission timetable,” ensuring a smooth process for the introduction of these innovative financial instruments.
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Overall, the London Stock Exchange’s initiative to admit Bitcoin and Ethereum ETNs marks a significant development in the crypto landscape, offering European professional investors regulated avenues to engage with digital assets. Shortly after the news became public, the Bitcoin price started its rise above $71,000.
Featured image created with DALL·E, chart from TradingView.com
