New.Bitcoin.com has confirmed that the exchange-traded product tracking an index of five leading cryptocurrencies will start trading on Switzerland’s principal stock exchange on Nov. 21. The exchange has also confirmed that this product is not an exchange-traded fund (ETF). The country’s financial regulator, Finma, explains the differences.
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Differences Between ETPs and ETFs
The news of the cryptocurrency exchange-traded product (ETP) by Zug-based Amun AG having been approved by Switzerland’s principal stock exchange, Six Swiss Exchange, spread throughout the crypto community over the weekend.
The product tracks an index of five major cryptocurrencies: BTC, XRP, ETH, BCH, and LTC. While Amun’s website refers to this product only as an ETP, some believe that it is an exchange-traded fund (ETF).
ETPs and ETFs are two different products, listed under different categories on Six Swiss Exchange.
A spokesperson from Finma, Switzerland’s financial regulator, told news.Bitcoin.com:
It is important to separate ETPs from ETFs, as ETPs are not subject to the Collective Investment Schemes Act (Cisa) and are therefore not supervised by Finma.
Noting that ETFs “are funds that are traded on an exchange and normally track the performance of an index,” he emphasized that “In Switzerland, these products are subject to the Cisa.”
A spokesperson from Six Swiss Exchange also confirmed to news.Bitcoin.com that Amun Crypto is an ETP, not an ETF, adding that the product will start trading on Wednesday, Nov. 21. The exchange clarified:
ETPs are collateralized, noninterest-earning bearer debt securities which replicate an underlying [asset] (generally from the commodities sector), either on a regular or leveraged basis. Like ETFs, they trade in a multi market-making segment, but in legal terms they are not funds.
ETFs, ETPs and ETNs
On its website, Six Swiss Exchange detailed different types of “passive financial products in Switzerland.” The first two on the list are ETF and ETP.
The document indicates that ETPs include exchange-traded notes (ETNs) and exchange-traded commodities (ETCs). ETNs are a type of debt security that trades on exchanges and promise a return linked to a market index or other benchmark. ETCs also trade on exchanges but provide exposure to commodities and commodity indices.
Furthermore, ETFs and ETPs also carry different risks. “ETFs are separate pools of assets,” Swiss Funds and Asset Management Association described in its report on ETFs and Index Funds. “In the event of the insolvency (bankruptcy) of the provider (e.g. the fund management company or custodian bank), the assets and rights of the ETF can be segregated, and there is no issuer risk in this regard.” Debt securities, however, “often entail an issuer risk that is hard to calculate,” the report author noted.
Public Misunderstanding Led to Trading Suspension
XBT Provider’s exchange-traded products have also been misunderstood by the public.
In September, the U.S. Securities and Exchange Commission (SEC) temporarily suspended trading of the company’s products — Bitcoin Tracker One and Ether Tracker One — due to the inconsistencies of their descriptions.
The commission wrote:
The broker-dealer application materials submitted to enable the offer and sale of these financial products in the United States, as well as certain trading websites, characterize them as ‘exchange traded funds (ETF)’ … Other public sources characterize the instruments as ‘exchange traded notes (ETN)’.
In addition, the SEC noted that “the issuer characterizes them in its offering materials as ‘non-equity linked certificates’,” which “are not principal protected” and “do not bear interest.”
Citing “a lack of current, consistent and accurate information” of the two investment vehicles which resulted “in confusion amongst market participants regarding these financial instruments,” the SEC justified its decision to suspend their trading.
What do you think of Amun Crypto ETP trading on Six Exchange? Let us know in the comments section below.