Exchange traded note (ETN)

Exchange traded note (ETN) – A type of senior (unsubordinated) unsecured debt security designed to track the total return of an underlying market index or other benchmark, minus investor fees. An ETN allows investors to buy an obligation, similar to a forward contract, which is traded on an Exchange. The purpose of ETNs is to create a type of security that combines both the aspects of bonds and ETFs. ETNs are similar to ETFs as they are listed on an Exchange and can be bought and sold throughout the trading day. ETNs may be linked to a wide variety of assets, including indices and/or single reference assets based on a variety of products such as commodity futures (e.g., industrial metals, power and petroleum), foreign currencies and equities (grouped by such categories as economic sector, strategy or geographic location). The issuer of an ETN is obligated to deliver the asset performance (less fees) in cash upon early repurchase or maturity . Investors can also hold the debt security until maturity, at which time the issuer will give the investor a cash amount that would be equal to the principal amount (subject to the day’s index factor). The creditworthiness of an ETN itself is not rated, but is based instead on the creditworthiness of the issuer, making the issuer’s credit rating an important consideration for ETN investors.