Exchange-traded Note

An exchange-traded note (or ETN) is a senior, unsecured, unsubordinated debt security issued by an underwriting bank. Similar to other debt securities, ETNs have a maturity date and are backed only by the credit of the issuer.

ETNs are designed to provide investors access to the returns of various market benchmarks. The returns of ETNs are usually linked to the performance of a market benchmark or strategy, less investor fees. When an investor buys an ETN, the underwriting bank promises to pay the amount reflected in the index, minus fees upon maturity. Thus ETN has an additional risk compared to an ETF - if the underwriting bank goes bankrupt, the investment might lose value, the same way a senior debt would.

Though linked to the performance of a market benchmark, ETNs are not equities or index funds, but they do share several characteristics of the latter. Similar to equities, they are traded on an exchange and can be sold short. Similar to index funds, they are linked to the return of a benchmark index. But as debt securities, ETNs don't actually own anything they are tracking.

The first ETN, marketed as the iPath Exchange-Traded Notes, was issued by Barclays Bank PLC on 12 June 2006. This was soon followed by Bear Stearns, Goldman Sachs & Swedish Export Credit Corp. In 2008, additional issuers entered the market with their own offerings; these include BNP Paribas, Deutsche Bank, UBS, Lehman Brothers, Morgan Stanley and Credit Suisse. As of April 2008, there were 56 ETNs from nine issuers tracking different indexes. The popularity of ETNs is mainly due to the advantages that it offers to investors.