Exchange traded notes – what are they?
Exchange traded notes popularly known as ETNs came in market in 2006. There are many banks that issue ETNs. Some of the popular exchange traded notes are the ones issued by Barclays bank PLC, BNP Paribas, Deutsche Bank, UBS and Morgan Stanley.
An ETN is an unsecured, unsubordinated senior debt security that is issued by the underwriting bank. It has a printed maturity date on it. The ETN is only backed by the credibility of the issuing bank. It provides the return according to the market bench mark and upon maturity it is paid sans the fees. The ETN becomes null and void if the bank goes bankrupt.
Advantage of exchange trade notes:
• Tax efficient
• Zero tracking error
• Product is liquid structured
• Access to the latest market trends and strategies
Disadvantages of ETNs:
• Credit risks
• Problem of liquidity
• Depend on credit rating
• Very insecure trading strategy
