Exchange-traded note

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An exchange-traded note (ETN) is a senior, unsecured, unsubordinated debt security issued by an underwriting bank.^[1][2] 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, a so-called market-linked note. 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 exchange-traded fund (ETF); if the credit of the underwriting bank becomes suspect, the investment might lose value in the same way that a senior debt would.^[3]

Often linked to the performance of a market benchmark, ETNs are not equities, equity-based securities, index funds or futures. Although ETNs are usually traded on an exchange and can be sold short, ETNs don't actually own any underlying assets of the indices or benchmarks they are designed to track.

The first ETN across the globe was developed and issued in May 2000 in Israel by Haim Even-Zahav the CEO of Psagot-Ofek financial instruments (Leumi group) under the product name TALI-25.^[4] The purpose of issuing this instrument was to track the TEL AVIV-25 index which represent the 25 leading companies in Israel.