(Kitco News) – The adoption of cryptocurrencies as a legitimate asset class continues to expand as the London Stock Exchange (LSE) announced it will roll out support for Bitcoin (BTC) and Ethereum (ETH) exchange-traded notes (ETN) beginning on May 28.
The exchange said they will start accepting applications for trading those crypto ETNs on April 8, and the market will be subject to the approval of the Financial Conduct Authority (FCA), the U.K.’s financial regulator.
“We have decided to launch the market in Crypto ETNs on 28 May 2024 to enable the maximum number of issuers to be present in the market on the first day of trading,” the LSE said. “In choosing this date, we have taken into consideration that we need to ensure that issuers meet the requirements for consideration detailed in the Crypto ETN factsheet, and importantly, it will also enable those issuers planning on admitting securities on the launch date, time to prepare documentation to establish a Crypto ETN programme which will require a base prospectus to be approved by the FCA.”
Similar to exchange-traded funds (ETFs), ETNs offer exposure to a basket of assets but have a different structure. With ETFs, investors partially own the basket of stocks or other holdings included in the product. ETNs function more like an unsecured debt note issued by a bank. The bank uses the proceeds to invest in assets that track a specific index. The value of the ETN reflects the performance of those assets, but the underlying assets are not held by the issuer.
Issuers who are interested in listing crypto ETNs on the main market must submit their applications to the LSE by April 15. Their application must include “(1) A letter setting out details of how the issuer and/or the Crypto ETN meets the requirements for consideration detailed in the crypto ETN factsheet, and (2) A draft of the base prospectus highlighting where disclosure of matters set out in (1) above, is included in the base prospectus,” the LSE said.
Issuers will not be able to participate in the first day of ETN trading if: “a) The Issuer has not satisfied the Exchange that it has met the requirements for consideration set out in the Crypto ETN factsheet; b) An Issuer’s application for admission is submitted to the Exchange after the 15 April 2024; and/or c) An issuer’s base prospectus has not been approved by the FCA by midday on Wednesday 22 May 2024,” the announcement said.
Earlier this month, the FCA said it would not turn down requests from Recognized Investment Exchanges (RIEs) to create a listed market segment for ETNs. These efforts come as the U.K. government is looking to make the country more crypto-friendly as part of their efforts to transform Britain into a crypto hub.
Under FCA regulations, the upcoming Bitcoin and Ethereum ETNs will be restricted to “professional investors” only. This means credit institutions and investment firms authorized to operate in financial markets will be the only ones able to participate, while retail investors are excluded.
This move by the LSE comes as the exchange is struggling to stay relevant. According to a report from Bloomberg, the number of companies listed on the LSE has fallen precipitously – with 2023 seeing the worst year for IPOs since 2009 – while trading activity has decreased significantly compared to pre-crisis levels.
Several factors have contributed to this struggle, including a shift in investor preferences, competition from other exchanges, and the regulatory landscape. The total value of London-listed equities fell from a high of $4.3 trillion in 2007 to roughly $3 trillion in February 2024. During that same period, the value of US stocks almost tripled to $53 trillion, and Paris overtook London as Europe’s largest stock market in 2022.
The LSE now appears to be turning to digital assets, which are seeing increasing interest from institutional investors, in an attempt to revive their status and be at the forefront of the next investment wave. If the exchange can create a regulated and secure environment for digital assets, this could potentially attract new investments and help the UK maintain its edge in the digital asset economy.
