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Definition

<p style="text-align: justify;">A <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">debt</span> <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">security</span> traded on a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">stock exchange</span>. An exchange trade note (ETN) is similar to an <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">exchange traded fund</span> (ETF) in that they both track underlying <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">assets</span> and both are traded on a stock exchange just like any <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">listed</span> <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">share</span>. The difference between an ETN and an ETF is that an ETF is a listed <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">investment</span> product which holds the assets it tracks, such as shares, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">gold</span>, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">futures contract</span>s or <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">commodities</span>. An ETN is an unsecured debt security which is <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">underwritten</span> by an institution such as a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">bank</span>. It is therefore much more <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">risk</span>y, because if the underwriter gets downgraded the ETN will lose value, and if the underwriter goes <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">bankrupt</span>, the investor could risk a total default. ETNs track the performance of an asset, but do not hold the asset which they track. Their value is linked to the credit rating of their issuer. When an ETN matures, fees are deducted and then cash is paid out to investors based on the performance of the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">index</span> followed.</p>