LSE Crypto ETN Marketplace Poised for Launch, Raising Questions

The London Stock Exchange (LSE) will launch a marketplace for Bitcoin cryptocurrency exchange traded notes (ETNs) in May, subject to FCA approval. The FCA requires that crypto ETNs be physically backed, non-leveraged, denominated in Bitcoin or Ethereum, and held in cold storage in specific locations. Issuers can submit up to three different currency lines for the ETNs, and the standard admission timelines do not apply due to the unique nature of the product.

Will the LSE's Crypto ETN Marketplace Take Off?

The London Stock Exchange (LSE) is set to launch a marketplace for Bitcoin cryptocurrency exchange traded notes (ETNs) in May, a move that has raised some eyebrows.

FCA's Role: Gatekeeper or Enabler?

The decision follows the Financial Conduct Authority's (FCA) announcement earlier this month that it will allow recognized investment exchanges to create a listed market segment for ETNs. However, the products will be available only to professional investors, in line with the FCA's ban on the sale of crypto derivatives and ETNs to retail customers.

ETNs: A Hybrid Approach

ETNs are debt securities that provide exposure to an underlying asset, in this case, Bitcoin. They differ from traditional cryptocurrencies in that they are backed by the issuer's creditworthiness and are regulated by the FCA.

Approval Process: A Balancing Act

For an ETN to be listed, it must meet certain criteria set by the FCA. These include being physically backed, non-leveraged, and having a reliable valuation mechanism. The underlying assets must also be held in secure storage in a jurisdiction recognized by the UK Anti-Money Laundering Act.

Proposed Launch Date: A Strategic Choice

The planned launch date of May 28, 2024, has been selected to maximize the number of issuers present on the first day of trading. This timing also allows issuers to complete the necessary documentation and meet the FCA's requirements.

Multiple Currency Options: A Flexible Approach

Issuers can submit up to three different currency lines for their ETNs, either simultaneously or in separate transactions. This flexibility allows them to cater to a wider investor base. However, the LSE notes that the standard admission timelines do not apply to crypto ETNs, and issuers are encouraged to engage with the exchange early on to discuss their admission plans.

Conclusion: A Measured Step into Crypto

The LSE's move into the crypto ETN market is a calculated step that balances the growing demand for exposure to digital assets with the need for robust regulation. While the launch date is still several months away, it remains to be seen whether this new marketplace will gain traction among professional investors and how it will shape the broader crypto landscape.