Crypto derivatives could become a feature of the UK’s trading landscape after the London Stock Exchange (LSE) announced that it would accept applications for crypto exchange-traded notes (cETNs).
The move follows the decision of the Financial Conduct Authority (FCA) to lift its ban on crypto asset-backed ETNs, which act in a similar way to ETFs but rely on unsecured debt securities issued by banks rather than directly holding the assets that are tracked.
The LSE will start accepting applications in the second quarter of the year but has warned that there will be conditions.
Admission will be limited to certain securities, the underlying cryptocurrencies must be either bitcoin or Ethereum; the assets cannot be leveraged and must be held in cold storage by a custodian that is subject to anti-money laundering rules.
The FCA originally banned cETNs back in 2021, however, the regulator announced that it “will not object to requests” from recognised investment exchanges to create a listed market for such derivatives.
The FCA has insisted that cETNs will only be available to professional investors.
One reason cited by the FCA for its decision is the increased insight and data due to a longer period of trading history which means that professional investors should be able “to better establish whether cETNs meet their risk appetite”.
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