The London Stock Exchange (LSE) announced that it will start accepting applications for Bitcoin (BTC) and Ether (ETH) crypto exchange-traded notes (ETNs) in the second quarter of 2024.

On March 11, the exchange confirmed that it would accept applications following the guidelines specified in its crypto ETF fact sheet. However, the exchange did not provide the exact date that it will start accepting applications.

Within the sheet, the exchange said that crypto ETNs should be physically backed and are non-leveraged. It should have a market price or value measure of the underlying asset that’s publicly available and must have BTC or ETH as underlying crypto assets.

The exchange also highlighted that the underlying crypto assets should be “wholly or principally” held in a cold wallet or something similar. In addition, it should be held by a custodian subject to AML laws in the United Kingdom, European Union, Switzerland or the United States.

The exchange defines ETNs as “debt securities which provide exposure to an underlying asset.” Crypto ETNs allow investors to trade securities that track the performance of crypto assets during the exchange’s trading hours.

An ETN is widely considered a soft alternative to exchange-traded funds (ETFs). Unlike the ETFs, an ETN is a debt instrument backed by its issuers rather than a pool of assets. ETFs often focus on esoteric debt strategies that do not easily fit into funds.

Meanwhile, the United Kingdom’s Financial Conduct Authority (FCA) also announced that it would not object to requests from Recognised Investment Exchanges (RIEs) to create a market segment for crypto-backed ETNs. According to the FCA, exchanges can offer these products to “professional investors,” including credit institutions and investment firms authorized or regulated to operate in financial markets.

The financial watchdog also urged exchanges to ensure sufficient controls are in place and protect investors properly. The FCA also said that the crypto-backed ETNs must meet requirements like ongoing disclosure and prospectuses as part of the U.K. Listing Regime.

While exchanges can offer ETNs to institutions, the FCA said that they are unsuitable for retail investors because of their risks. The regulator said that selling crypto-backed ETNs to retail consumers will remain banned. “The FCA continues to remind people that cryptoassets are high risk and largely unregulated. Those who invest should be prepared to lose all their money,” the regulator wrote.