What Are Exchange-Traded Notes (ETNs)?

Business & Management
#1

ETNs (exchange-traded notes) are unsecured debt instruments that follow an underlying index of securities and trade-like stocks on a major exchange. ETNs are comparable to bonds, however, they don’t pay interest. ETNs, on the other hand, fluctuate in price like stocks.
An ETN is a type of exchange-traded note that is generally issued by financial institutions and is based on a market index. Bonds, such as ETNs, are a kind of investment. The ETN will pay the return of the index it monitors when it matures. ETNs, on the other hand, do not pay interest as bonds do.
When the ETN matures, the financial institution deducts costs before paying the investor cash depending on the underlying index’s performance. Investors may buy and sell ETNs on major exchanges, much like stocks, and profit from the difference between the purchase and selling prices, less any costs.
ETNs are not the same as exchange-traded funds (ETFs) (ETFs). ETFs own the equities that make up the index they follow. An ETF that tracks the S&P 500, for example, will hold all 500 equities in the S&P.
ETNs do not provide investors ownership of the securities; instead, they are paid the index’s return. As a result, ETNs have a lot in common with debt securities. Investors must have faith in the issuer to provide the expected return based on the underlying index.

#2

Exchange-traded note (ETNs) are similar to exchange-traded funds in that they trade on a stock exchange and track a benchmark index. However, there are important differences:

  • An ETN is a senior, unsecured debt security issued by a bank, unlike an ETF which holds assets such as stocks, commodities, or currencies which are the basis of the price of the ETF. The return of an ETN is linked to a market index or other benchmark

  • An ETN promises to pay at maturity, the full value of the index, minus the management fee. Like any other debt security, the investor is subject to the credit risk of the bank issuer