This article needs additional citations for verification. Similar to other debt 외환 PDF, 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. 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 was developed and issued by the Equity Structured Products Group at Morgan Stanley in March 2002 under the product name BOXES as a way to access the biotechnology index at very low cost. In 2006, Barclays re-marketed the product under the trade name Exchange-Traded Notes. The returns of ETNs are linked to the performance of a market benchmark or strategy, less investor fees. As discussed previously, ETNs are debt notes.
When held to maturity, the investor will receive a cash payment that is linked to the performance of the corresponding index during the period beginning on the trade date and ending at maturity, less investor fees. Typically, ETNs do not offer principal protection. ETNs could also be liquidated before their maturity by trading them on the exchange or by redeeming a large block of securities directly to the issuing bank. The redemption is typically on a weekly basis and a redemption charge may apply, subjected to the procedures described in the relevant prospectus.
The investor fee is calculated cumulatively based on the yearly fee and the performance of the underlying index and increases each day based on the level of the index or currency exchange rate on that day. Since ETNs are unsecured, unsubordinated debts, their risk is that of bonds of similar priority in the company’s capital structure. Often issued off medium-term note shelves, ETNs would be pari passu with other debt issued off the same shelf. An ETN offers a tax-efficient way to invest. The buyer of a prepaid contract pays an initial amount in order to receive a future payment based on the value of an index or other underlying benchmark at a specified future time. Very often index mutual funds and ETFs are required to make yearly income and capital gains distributions to its fund holders that are taxable. When a fund is forced to sell stock to rebalance or otherwise change its composition, the fund holders have to pay any resulting capital gains tax.
With ETNs, in contrast, there is no interest payment or dividend distribution, which means there is no annual tax. Recent tax rulings have suggested that ETNs may be qualified tax shelters for the purpose of changing current interest income into deferred capital gains income. ETNs are a significant innovation to improve liquidity of structured products. Unlike other buy-and-hold structured products, ETNs can be bought and sold during normal trading hours on the securities exchange. For institutional size redemption, investors may offer their ETN for repurchase by the issuer on a weekly basis.