London Stock Exchange to list crypto derivatives for institutional investors

The London Stock Exchange has said it will be accepting applications for crypto exchange-traded notes (ETNs), after the Financial Conduct Authority lifted its ban on the instruments for institutional investors.

ETNs are similar to exchange-traded funds (ETFs), but they rely on unsecured debt securities issued by a bank, meaning that they do not directly hold the assets they track.

They were developed in 2006 by Barclays Bank and pay investors based on where the index they follow ends up, making them derivatives.

This morning, the LSE said it would begin accepting applications for the crypto ETNs in the second quarter of the year, but warned that it would be limiting the admission of certain securities due to a risk to the “the reputation and integrity” of its markets.

It will only be accepting ETNs that have Bitcoin or Ethereum as their underlying assets, are non-leveraged, and must be held in ‘cold storage’ in an offline depository wallet by a custodian subject to anti-money laundering regulations.

Today, the FCA said it “will not object” to one of the UK’s six recognised investment exchanges seeking to create a listed market segment for crypto ETNs, as they have “increased insight and data due to a longer period of trading history.”

“Exchanges will need to continue to make sure sufficient controls are in place, so trading is orderly and proper protection is afforded to professional investors,” the regulator said.

These funds must also meet all the requirements of the UK listing regime, added the FCA, such as on prospectuses and ongoing disclosure.

Since the FCA banned the sale of crypto derivatives to retail investors in January 2020, they will not be available to the public.

The regulator said it continued to believe that the funds “are ill-suited for retail consumers due to the harm they pose”. Therefore, the ban on all crypto derivatives, including ETNs, remains in place.

“The FCA continues to remind people that cryptoassets are high risk and largely unregulated,” the regulator added. “Those who invest should be prepared to lose all their money.”

Bitcoin is up 3.3 per cent on the back of the news.