Call Now For a Free Consultation:
(614) 532-4576
Nationwide Representation

Exchange-Traded Notes Hold Unpleasant Surprises, Warns FINRA

Exchange-Traded Notes Hold Unpleasant Surprises, Warns FINRA

Due to the exchange-traded note market’s recent problems with price variations and issuer credit risk, the Financial Industry Regulatory Authority (FINRA) has released a new investor alert warning investors to pay close attention to the products’ associated risks before they invest.

Exchange-traded notes (ETNs) are basically unsecured debt obligations of an issuer (typically either a bank or other financial institution) that trade on exchanges and promise a return linked to a market index or other benchmark. Though the name brings up the image of an ETF (exchange-traded fund), ETNs do not buy or hold assets in order to replicate or approximate the performance of the underlying index. They also, unlike typical bonds, do not pay interest payments to investors. Instead, the issuer agrees to pay the investor a “distribution,” based on the performance of the underlying index or benchmark on the ETN’s maturity date, minus specific fees.

The underlying index may be a familiar, broad-based index or it may be a newer, more complex, or proprietary index. Additionally, the maturation date may be decades into the future. These variations make the products difficult for even sophisticated investors to understand, a reality FINRA is afraid investors don’t fully comprehend.

"ETNs are complex products and can carry a raft of risks. Investors considering ETNs should only invest if they are confident the ETN can help them meet their investment objectives and they fully understand and are comfortable with the risks," said Gerri Walsh, FINRA's Vice President for Investor Education.

Risks associated with the products, include:

• Credit Risk; Market Risk; Liquidity Risk; Price-Tracking Risk; Holding-Period Risk; Call, Early Redemption, and Acceleration Risk; and Conflicts of Interest.

To learn more about the specific risks associated with exchange-traded notes, read the full FINRA investor alert here.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

Share This Story
If you found the information provided by this article useful, consider sharing to your social media channels to help others in their search for reliable resources.
Consult with Our Legal Team
There is never a cost associated with a consultation
Atlanta Office

945 East Paces Ferry Road, Suite 2275
Atlanta, GA 30326
Columbus Office

614-224-6000
305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

310-905-8688
2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

216-600-1355
4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

248-817-8214
41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram