“ETNs are complex products and can carry a raft of risks. Investors considering ETNs should only invest if they are confident the ETN can help them meet their investment objectives and they fully understand and are comfortable with the risks,” said Gerri Walsh, FINRA’s Vice President for Investor Education, in a press release. [A Primer on Exchange Traded Notes]
Investors received a harsh lesson on the risks of the financial products earlier this year when VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX) quickly lost half of its value when its premium collapsed. [TVIX Washout Raises Questions Over ETNs]
FINRA started investigating how companies were marketing ETNs after the TVIX debacle. [ETF Providers Call for More Product Transparency]
“ETNs can offer investors convenient and cost-effective exposure to everything from commodities to emerging markets, but they can be complex and carry numerous risks—including the risk that the issuer will default on the note or take other actions that may impact the price of the ETN,” FINRA said in the investor alert released Tuesday.