Young Asset Class ETNs

10 December 2009. FRANKFURT (Börse Frankfurt). ETNs are on-exchange bonds and are linked to the performance of the corresponding market indicator. Besides volatility indices there are currencies or equity indices. Also, ETNs are either backed or unsecured.

In the USA, ETNs have been available since 2006 with the list of instruments of this category now comprising more than 100 products.

Legally and in terms of trading ETNs are the same as ETCs, but it has become common in the market to use the term ETC for bonds linked to commodities. Besides that almost all ETCs traded on Xetra are backed either physically or on trust.

In contrast to exchange traded funds (ETFs) ETNs are legally not considered funds, but instead are offered as debt securities. Consequently, the products bear an issuer risk, which means the issuer could default as debtor. On the other hand, the structure of ETNs enables investors to participate in exotic products and other market indicators. An engagement in the volatility of equity markets has not been possible via ETFs so far.

ETNs and ETFs alike are traded fully electronically on Xetra. Usually, a number of Designated Sponsors provide quotes continually, thus providing bid and ask prices. Designated Sponsors are in competition with each other, and that creates transparency.

Deutsche Börse’s ETF and ETP product range currently comprises 543 ETFs, 141 ETCs and 2 ETNs.

© 10 December 2009/Edda Vogt