Exchange Traded Notes (ETNS)

Equity Market Business Development

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Copyright© JSE Limited 2008

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Exchange Traded Notes

Definition
An Exchange Traded Note is a contractual obligation made by an
issuer to pay the holder a return which is linked to the
performance of underlying securities or benchmarks, for example
an interest rate, the performance of one or more shares or bonds,
an index, an exchange rate or a commodity.
They are senior, unsecured debt securities issued by an
underwriting bank. They provide investors exposure to markets
which are otherwise difficult to gain access to in a cost effective
way.

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Introducing ETNs

Investment objective
• The objective is to provide investors with an exposure to markets
that are otherwise difficult to gain exposure to.
Type of security
• Senior and unsubordinated debt security
Issue size
• ETNs are open ended investment securities

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ETNs and ETFs

ETNs are similar to Exchange Traded Funds (ETFs) in that they

are listed on an Exchange and can be bought and sold throughout
the trading day.
Differences between ETNs and ETFs

ETN ETF
Tracking Error No Yes
Credit Risk Issued off issuers Ring Fenced
balance sheet Assets
Underlying Flexible Structure Restrictive
Mandate

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Global Growth

The first ETN, marketed as the iPath Exchange-Traded Notes,

was issued by Barclays Bank PLC on 12 June 2006.
Investments in iPath ETNs surpassed $2 billion by late April 2007
By 18 July 2006, just one month after the launch of first two ETNs,
GSP and DJP, GSP had attracted more than $40 million in assets,
and DJP had pulled in more than $130 million for Barclays.

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Listing Requirements

Section 20 (Debt Sector)

This section applies to any issuer of debt securities, namely:
(a) Public or private companies;
(b) Quasi-governmental entities (most commonly, provincial and
local authorities/municipalities and state owned entities); or
(c) Government.

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Structure of ETNs

ETNs may be linked to a wide variety of assets. Today there are

many types of ETNs linked to indexes and/or single reference
assets based on a variety of products such as the following,
These are four examples of types of ETNs;
1. Commodity ETNs- commodity futures (energy, grains, industrial
metals, livestock, and petroleum),
2. Emerging Market ETNs (the India Index ETN)
3. Currency ETNs – foreign currencies (Euro, yen)
4. Strategies ETNs - grouped by such categories as industry
sector, strategy or geographic location

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Benefits

Accurate
ETNs accurately track the performance of the underlying market
benchmark
Liquid
ETNs are open-ended securities, and therefore are not limited to
on-exchange volumes and issuers are obliged to act as (or
appoint) market makers
Accessible
ETNs are traded and settled on the stock exchange, the same as
any equity, and can be purchased and held in ordinary brokerage
or custodial accounts

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Benefits

Simple
ETNs do not involve any of the difficulties with buying and then
managing a futures position (e.g. worrying about margin calls)
Transparent
ETN pricing is based on a transparent formula with the pricing
updated daily by the issuer
Guaranteed pricing
ETNs are priced using published settlement prices
No tracking error
ETNs give investors a broad-based index without any tracking
error to the index.

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Risks

Credit Risk
ETNs, as debt instruments, are subject to risk of default by the
issuing bank as counter party.
 Market Risk
Movement of market interest rates may impact the traded price of
the notes resulting in them trading above or below their issue
price.

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Fees

Range from 0.30% to 1.25%.

The issuer charges an annual fee that accrues through the term of
the ETN (As a result of this fee, the return of the ETN will be lower
than that of the underlying index).
Because ETNs trade like stocks, brokerage commissions and/ or
transaction costs typically apply to ETN purchases and sales
depending on your account type.

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Value of an ETN on an intra-day basis?

ETNs are debt securities that do not trade at, nor have a net asset
value (NAV)
The sales price of the ETN may be higher or lower than the
relationship of the ETN to the index or asset value underlying it
(sales price is based on the supply and demand in the
marketplace).
Factors relevant to the establishment of any price, including but
not limited to;
1. value and direction of the underlying index or asset class,
2. the ETN’s expected total return,
3. the creditworthiness of the issuer,
4. Liquidity in the marketplace.

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Total return of the ETN

The method and calculation of total return components will vary by

ETN and will be different depending on the underlying asset class.
1. equity-based ETNs
the index return is computed based on the dividend reinvestment
2. currency-based ETNs
the total return or accumulation factor is a daily accrual of interest
in the hypothetical notional amount of the underlying currency
index
3. commodity-based ETNs
the total return is the rate of interest that could be earned on cash
collateral while holding futures positions.

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Amendments to JSE Industry Sector, Additional A001

The new structure will be as follows:

Creation of a new Super Sector, A300 Exchange Traded Products
Two new Sectors:
• A310 Exchange Traded Funds (ETFs) – All ETFs to move from
sector A140
• A320 Exchange Traded Notes (ETNs) – Only ETNs to move from
super-sector A900
Two new sub-sectors:
 A311 Exchange Traded Funds – All ETFs to move from sub-
sector A141
 A321 Exchange Traded Notes – Only ETNs to move from sub-
sector A911

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ETP Sector A300

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Newly Created ETP Sector Advert

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Listed JSE notes

 Standard Bank Retail Notes are JSE listed fixed income

securities that give individuals access to superior interest rates,
previously only available to companies and institutional investors.
Retail Notes can be bought and sold (traded) on the JSE with
Standard Bank acting as market maker guaranteeing tradability.

1. SB RETAIL(JIBAR+15)SEP11
 THE STANDARD BANK OF SOUTH AFRICA LIMITED
DEPOSIT NOTE
2. SB RETAIL(JIBAR+30)NOV13
 DEPOSIT NOTE - MATURITY DATE 5 NOVEMBER 2013

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SB Retail(JIBAR+15)Sep11 Jan 2009-December 2009

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SB Retail(JIBAR+30)Nov13 Jan 2009-December 2009

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Carbon Credit Notes

Carbon Credit Notes are designed to provide Holders with the

opportunity to gain exposure to Carbon Credits to be generated
from the Projects, through holding a listed tradable security.
LongName : STERLING WATERFORD CCN SP
Alpha : CBN013
ListingDate : 2008/10/31
High: 17500
Low: 17500
MarketCap: 50021722.5

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