Update : Oct. 29, 2012
The general risks when investing in ETNs are as follows.
ETNs differ from ETFs in that they do not hold backing assets and are issued on the credit of their issuer financial institution. Because of this, an ETN’s price may decline or be nullified due to bankruptcy or a deterioration of financial conditions on the part of the issuer. As such, it is important for investors to take note of such credit risk.
In order to reduce this type of credit risk, TSE requires ETN issuers to have a certain level of credit and has provided strict listing examination and delisting criteria regarding financial status and credit rating, etc.
Specifically, financial criteria, etc. are equivalent to TSE’s strict listing rules, such as net assets of at least JPY 500 billion, an equity capital ratio of over 8%(*), and an issuer credit rating of at least A- or its equivalent from a credit rating firm.
Also, in cases of deterioration of timely disclosure of financial conditions or financial conditions themselves, TSE has prepared a system for issuance of cautions which falls under the delisting grace period. More so, in cases where an improvement of financial conditions has not been seen, TSE will delist the issue.
Cases of issuer bankruptcy fall under the delisting criteria, and issues will be delisted in the same manner as regular listed companies. However, because holders of a certain amount of the security may request purchase or redemption, in cases where credit risk has increased, it can be limited through the exercise of such request rights.
In cases of low order volume, trading of the ETN may not be possible at the expected price due to market conditions such as stock price index.