The UK Financial Conduct Authority (FCA) has announced that it will open up exchange-traded notes (cETNs) supported by cryptocurrency assets for professional investors. Following this, the London Stock Exchange has expressed its intention to accept applications for ETNs based on Bitcoin and Ethereum in the second quarter, further expanding investment avenues in the cryptocurrency market.
Background:
The UK accelerates cryptocurrency regulation! Stablecoins and collateralized new regulations expected to be legislated within 6 months.
The UK has announced regulations for “digital securities sandbox”: Traditional securities can apply for tokenization starting from January next year.
After the launch of the Bitcoin spot ETF in the US, it has attracted nearly $9.6 billion in fund inflows, with assets under management reaching $55.5 billion. The Economist recently wrote an article acknowledging that with the advent of ETFs, Bitcoin has become an investment asset.
UK FCA opens application for cryptocurrency ETNs
Against this backdrop, the UK Financial Conduct Authority (FCA) today issued a press release stating that it will not oppose requests from “recognized investment exchanges (RIEs)” to create cETNs supported by cryptocurrency assets. However, these products will specifically target professional investors, such as authorized or regulated investment companies and credit institutions in the financial market, rather than retail investors.
There are differences between exchange-traded notes (ETNs) and exchange-traded funds (ETFs). ETNs are unsecured debt securities typically issued by banks, with returns linked to the performance of their underlying index but without actual ownership of the assets. In contrast, ETFs are investment funds that directly invest in assets such as stocks, cryptocurrencies, or commodities and provide returns based on the performance of these assets, with investors actually owning a portion of the fund’s assets.
To propose the inclusion of cETNs in the market, exchanges need to ensure sufficient control measures are in place for orderly trading and provide adequate protection for professional investors. At the same time, cETNs must comply with all regulations of the UK listing regime, including but not limited to the issuance of prospectuses and ongoing disclosure obligations.
Regarding limitations on investor participation, the FCA believes that exchanges and professional investors should now be able to assess whether cETNs are suitable for their risk appetite more effectively. However, given the high risks and mostly unregulated nature of cryptocurrency assets, the FCA believes that these products are not suitable for retail investor participation.
London Stock Exchange to accept BTC/ETH ETN applications in Q2
Following this, the London Stock Exchange has expressed its intention to accept applications for Bitcoin and Ethereum ETNs in the second quarter of this year, with the specific launch date to be determined later.
According to the application guidelines released by the exchange, issuers must meet the following requirements:
The proposed crypto ETN: (a) is physically supported, i.e., non-leveraged; (b) its underlying market price or other value measurements are reliable and publicly available; (c) it is backed by Bitcoin or Ethereum as the underlying cryptocurrency.
The underlying cryptocurrency must be: (a) primarily or entirely held in “offline storage,” including offline collateralization; or (b) held by custodians regulated by anti-money laundering regulations in the UK, EU (or equivalent laws applicable in the European Economic Area), Jersey, Switzerland, or the United States.
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