The SEC May Have ETNs On Its Radar | ETF Trends

As the Securities and Exchange Commission takes a closer look at complex securities, exchange traded notes could fall under the microscope next.

Amy Starr, head of the Securities and Exchange Commission’s capital markets trends office in Washington, remarked that lenders may not be adequately explaining how they value ETNs, reports Kevin Dugan for Bloomberg.

ETNs are a type of debt security issued by an underwriting bank and use derivatives to track a range of assets. An issuing financial institution promises to pay ETN investors a return on a benchmark index before the ETN matures. [What Are ETNs?]

Colbrin Wright, assistant professor at Brigham Young University, argues that disclosures for the securities should be simplified as the indices they are linked to become more complex.

“When you’re talking about disclosure regulation, you have to be thinking about the unsophisticated investor,” Wright said in the article. “It’s simply a matter of making sure that investors go in with their eyes wide open.”