Exchange-traded note

An exchange-traded note (ETN) is a senior, unsecured, unsubordinated debt security issued by an underwriting bank or by a special-purpose entity.^[1][2] Similar to other debt securities, ETNs may have a maturity date and are backed by the credit of the issuer, though some ETNs may have a portfolio of assets given as a collateral.^[3]

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, a so-called market-linked note, or to the performance of an active investment strategy, in this case being called an actively managed certificate^[4] or performance-linked bond.^[5] In all cases, the returns are net of expenses and management fees.

When an investor buys an ETN, the issuer promises to pay the amount reflected in the index net of expenses and fees upon maturity (though in some cases the ETN may be perpetual, and the investor will get their investment back by selling it in the secondary markets). Thus an ETN has an additional risk compared to an exchange-traded fund (ETF); if the credit rating of the issuer is compromised, the investment might lose value in the same way that a senior debt would.^[6]

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, owners of ETNs don't actually own any underlying assets of the indices or benchmarks they are designed to track.

The first documented case across the globe of an ETN was the case of an ETN developed and issued in Israel in 2000 that tracked a basket of multiple securities traded on the Tel Aviv Stock Exchange^[7]