ETNs (exchange traded notes) are only a couple years old but the idea has been around since the early 90s. They are “Structured Notes,” a debt vehicle, usually with time to maturity of over ten years, where the issuer promises to pay the return of a set investment determined by the issuer, foreign currency is most common. However, the possibilities are vast and an issuer could promise to pay the return of double an index or 1.5 an index. Barclay’s now offers the return of carbon related credits. So, ETNs are simple, tradable like a stock or an ETF, and carry relatively small expense ratios.
An ETN can be used by individuals, advisors, and institutions to meet allocation or strategy needs like a S&P 500 buy-write strategy that otherwise may be hard or not cost effective to execute directly. Most Commodities, currencies and commodity indexes can be held through an ETN.
ETFs are limited by the mutual fund regulations that govern them which limit commodity ownership and the use of futures. Some of the ETFs that track commodities are actually “grantor Trust” which are complicated and hold the commodity “in trust” for investors.
ETNs are not limited by those regulations can use futures and options to exposure investors to strategies, and assets that can be unique to ETNs giving the individual and Financial Advisor access that they ordinarily would not have.
What’s the risk?
As discussed previously, an ETF can be liquidated when an issuer goes bankrupt and investors will get the market price from the basket of underlying securities. This is not fun and could create very unfavorable tax consequences but it sure beats total loss.
However, Since an ETN is an unsecured debt instrument, the investor must get in line with the firm’s creditors.
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
I have bought principle protected note (exchange traded notes) from Lehman Brother , what is the odds that I still can get most of my money back?
Well, if you hold one of Lehman’s 3 ETNs there may be getting pennies on the dollar. If you hold some other structure debt products that are backed by an asset, whoever buys the assets from lehman will determine the ability for the debt repayment. Even in this second case the purchaser may try and find loopholes.
I assume you are in Canada on Europe where PPNs are extremely popular. I am not an expert on debt issued on foreign exchanges but may be able to offer information only if I had more information on the specific PPN you have, who you purchased through, and the ballpark amount of capital allocated to the product
You could start by going to the Lehman website, find the category of the debt you own (asset back or not) and get all the information you can about repayment.
Also, you need to find an expert especially if most or all your wealth is in a Lehman PPN.
It will most likely be months before the dust has settled with Lehman since many of they structured debt involves options and other non-liquid investments.
Thank you Kyle!
All I know the product that I bought from a small broker in US is called “principle protected notes
linked with foreign currency exchange”. I actually does not know if it is ETN.
My broker told me it is a senior notes.
I just want to know the likely hood that I can get part of money back.
Thanks again.
Sorry I did not answer your original question:
You will most likely be getting a portion of you money back. How much money is still to be figured out be Lehman and it depends on the selling off of their assets.
I don’t think there is a high likelyhood of total loss.
Hope this helps,
Kyle.