What is an ETN?

Exchange Traded Notes (ETN) are financial instruments issued against a direct investment by the issuer in the underlying (different from commodities) or underlying derivative contracts. The price of ETN is, therefore, directly or indirectly linked to the performance of the underlying. Similarly to ETCs, the ETNs:

  • are traded on the Stock Exchange like the shares;
  • passively track the performance of the underlying (typically an index) to which they refer thus being fully entitled to being included in the family of “passive instruments”.

With ETNs, investment opportunities are extended: ETNs, in fact, allow investors to take position on indices and underlyings different from commodity already covered by ETCs. An ETN, in fact, is a securitized derivative financial instrument issued by a vehicle company whose target is to mirror equity, bond, currency and rate indices. The only one difference between ETCs and ETNs is the underlying: ETCs track commodities indices while ETNs track underlyings other then commodities. Both instruments share, however, the same features with regard to the issuer and the transaction structure.

The ETNs, like ETCs, are securities without maturity issued by a vehicle company in relation to an investment in the underlying to which they refer or an investment in underlying derivative contracts entered into by the issuer with high standing international dealers.  What assimilates ETCs and ETNs is the existence, for each class of securities, of a primary market and a secondary market. The primary market, accessible exclusively by authorized participants, permits the subscription and redemption of the securities on a daily basis at the price of the official value of the ETN. The secondary market is represented by the Stock Exchange, where all the other investors may trade the ETNs for the price determined by the best bid and ask orders inserted on the trading book. The creation and redemption procedure on the primary market permits authorised intermediaries to make arbitrages, which cause that the price of ETNs on the secondary market is always constantly aligned to the market value of the underlying commodity as it happens for ETCs: then, the risk of buying (selling) an ETN with a higher (fewer) price than the market value of the underlying, but this risk can't be excluded.  

Main Features

Thanks to continuous trading of ETNs, the ETFplus market makes possible for all investors to access indices and underlyings not tracked by ETCs, in a simple, transparent manner and with high liquidity.

In synthesis, an ETN permits:

  • To access the underlying market directly: the ETNs track the performance of different indices (currency, rates, equity, bond), thanks to the direct investment by the issuing company in the underlying derivative contracts. The ETNs enable investors to have an exposure similar to the one that would be obtained through a long position on the underlying index. Nowadays, on the ETFplus market, there are listed ETNs which track the performance of strategies on currencies (with leverage).
  • To access indices difficult to invest at a low cost: like for the ETCs, the investor is charged no “Entry”, “Exit” and “Performance” fees, while management fees are applied in proportion to the time during the investment. Finally, like for the purchase of any other security on the market, only trading fees applied by one’s own bank/broker must be considered.


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