Warning by FINRA on ETNs
FINRA, the Financial Industry Regulatory Authority Inc., issued an investor alert about the risks of ETNs, exchange-traded notes, after an investigation of Credit Suisse and Barclays ETNs this year.
ETNs are often thought of as as ETFs, exchange-traded funds, but in reality, the two are very different. ETNs are promissory notes written by banks to deliver the returns of an index, and don’t actually hold anything, whereas ETFs, hold a stocks or bonds that trade intraday on an exchange. A bank may stop issuing new shares and cause trouble for an ETNs. This can happen because the maximum number of shares has been reached or the bank is no longer able to hedge effectively against the index. If no new shares are issued the ETN functions like a closed-end fund and continued demand can drive shares to a premium over the net asset value.
Barclays’ iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (GAZ), shares were at a high of 134% of its NAV in March — meaning investors were paying more than $2 for $1 of the ETN’s exposure. It’s now at a 32% premium.
Credit Suisse VelocityShares Daily 2X VIX Short-Term ETN (TVIX) stopped issuing new shares in February. Doubled in value but when Credit Suisse Group AG resumed issuing shares in March, the ETN’s share price fell to the NAV, losing $172 million in a single day.
JPMorgan Alerian MLP Index ETN (AMJ) halted the issuing of shares last month and is now trading at a premium of nearly 1%.
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you have investment losses call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.
Soreide Law Group, PLLC., representing investors nationwide.
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