cryptocurrency ETNs

UK: FCA and LSE give green light to cryptocurrency ETNs

The UK’s Financial Conduct Authority (FCA) has announced its willingness to consider requests from regulated exchanges to establish a market segment for cryptocurrency-backed Exchange Traded Notes (ETNs).

ETNs are a type of unsecured debt securities issued by investment banks or asset management companies. Often, these instruments are used to track assets or indices that other exchange traded products (ETPs) cannot track. However, unlike traditional bonds that pay interest, ETN prices fluctuate like stocks, adding an additional risk component for investors.

The FCA has indicated that it will allow access to cryptocurrency ETNs to professional investors only. This includes credit companies and investment institutions authorized to operate in financial markets. Retail clients, on the other hand, will not have access to these products or any other crypto derivatives, with the justification of avoiding the possible associated risks that they could represent for this group of investors. Risks for whom? ^^ Curious…

The regulator has established criteria for the approval of these products. Recognized Investment Exchanges (RIEs) wishing to launch cryptocurrency ETNs must demonstrate that they have adequate controls and meet all UK listing requirements. The FCA will review these applications on a case-by-case basis.

ETNs London Stock Exchange (LSE)

At the same time, the London Stock Exchange (LSE) has confirmed its readiness to accept applications for ETNs backed by Bitcoin (BTC) and Ether (ETH) starting in the second quarter of this year.

The LSE has set guidelines for the approval of these crypto ETNs. These must be physically backed and unleveraged, and the underlying asset must have a market price or publicly available measure of value. Additionally, the underlying cryptoassets must be held “wholly or primarily” in a cold wallet or similar, in the custody of a custodian subject to the AML laws of the United Kingdom, the European Union, Switzerland or the United States.

In its crypto ETF factsheet, the LSE defines ETNs as “debt securities that provide exposure to an underlying asset.” Although they are considered a lighter alternative compared to exchange-traded funds (ETFs), it is important to keep in mind that ETNs are debt instruments backed by their issuers, not a pool of assets as is the case with ETFs.

This news comes at a time when Bitcoin and Ethereum prices are on the rise, with Bitcoin (BTC) surpassing $71,500 and Ethereum (ETH) crossing $4,000.

Featured image: Juan José Leiva – generated with AI

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