Investors should be aware of Exchange-Traded Notes (ETNs), which comprise about one third of the U.S. market. Many of these ETNs have been delisted from stock exchanges, and trade only in other markets where there is little transparency. Investors may be overpaying for these ETNs, which is oftentimes not the real value price. An ETN is a type of unsecured, unsubordinated debt security that is based on the performance of a market index. Its value may be affected by the credit rating of the issuer, and may drop due to a downgrade in the issuer’s credit rating, even if there is no change in the underlying index. It is in this way that they can be risky and illiquid investments. When the ETN matures, the financial institution takes out fees and only then does the investor receive cash based on the performance of the index. Many of these investments are labeled as “broken investments,” and investors may not know about their risk. Some ETNs may stay in the market for years, because banks cant force investors to liquidate and some cannot be closed by the bank until they mature, sometimes 20 to 30 years after issue.
The most recent ETN to face scrutiny is JP Morgan’s Alerian MLP Index ETN, a $3.7 billion security, launched in 2009, as a successor created by Bear Stearns less than a year before the firm’s collapse. Because of the popularity of this ETN, JP Morgan suspended new note creation in 2012. This security was an oil and gas asset and was at a substantial premium over the value of its underlying oil and gas assets. The premium then collapsed. If you suffered losses with JP Morgan’s Alerian MLP Index ETN, you may be able to recover those losses in the Financial Industry Regulatory Authority arbitration forum by bringing a claim against the bank. Many oil and gas investments are not suitable for all investors and JP Morgan brokers must take this into account when recommending or selling a security. If you were sold an oil and gas ETN by a JP Morgan broker, please contact one of our attorneys today.