ETPs — Switzerland's Alternative To Exchange-Traded Funds

While the entire world is waiting for the US SEC decision regarding Bitcoin ETFs, Switzerland found another solution. The country's financial regulator, FINMA, confirmed that the exchange-traded product will arrive in Switzerland's principal stock exchange tomorrow, on November 21st. The ETP will track five top cryptocurrencies.

What Are ETPs And What Makes Them Different From ETFs?

ETPs are exchange-traded products which are being approved by Switzerland's stock exchange called Six Swiss Exchange. The ETP is being issued by Amun AG, headquartered in Zug, and it will track five largest digital currencies — Bitcoin, XRP, Ethereum, Bitcoin Cash, and Litecoin.

Despite the fact that Amun's website clearly states that this is only an ETP, many believe that it is actually a long-awaited ETF. However, these are two very different products, that do not fall under the same category. FINMA, the country's regulator, commented by saying that it is important to separate the two and understand why they are so different. The main reason is the fact that ETPs are not subject to the CISA (Collective Investment Schemes Act). As a result, they are not supervised by FINMA.

Alternatively, ETFs would be subject to the CISA, as they are funds that are traded and are normally tracking an index's performance. The same was confirmed by the Six Swiss Exchange, whose spokesperson added that this product will start trading on November 21st. They also stated that ETPs are similar to ETFs in a way that they trade in a multi market-making segment. However, they are not funds in a legal way. Instead, they are collateralized and noninterest-earning bearer debt securities. They can replicate an underlying asset which is usually from the sector of commodities.

Six Swiss Exchange went a step further in their attempts to explain Switzerland's passive financial products by making a clear difference between ETF and ETP. Their document also shows that ETPs will include ETNs (exchange-traded notes) as well as ETCs (exchange-traded commodities).

While ETNs are a kind of debt security that can be traded on exchanges with a promise of returns linked to a market index, ETCs provide exposure to various commodities. In addition, there are also different risks involved with ETFs and ETPs. ETFs are separate asset pools which can be segregated in case of the provider's bankruptcy, which means that there is no issuer risk involved.

The Public Does Not Understand ETPs

Back in September 2018, it became evident that ETPs are not understood properly. According to XBT Provider, its ETPs were massively misunderstood, which eventually led to the SEC suspending the trade of the firm's two products — Bitcoin Tracker One and Ether Tracker One. The suspension was supposedly caused by the inconsistencies in the products' descriptions.

The SEC stated that these are ETFs, which have not yet been approved, with other public sources describing the instruments as ETNs as well. Furthermore, the regulator states that they were characterized as ‘non-equity linked certificates' by the issuer and that they are not principal protected, nor do they bear interest. Finally, the SEC announced that there is a clear lack of accurate information of these investment vehicles, which is confusing the public. As such, their trading will be suspended for the time being.

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