Exchange Traded Notes - the term that captures everything else that is not an ETF or ETC.

These are open ended notes, They are senior un-subordinated debt listed on an exchange, carrying the issuer balance sheet risk to the end investor.

They are notes issued by one single bank (i.e. credit exposure) with no asset or physical backing behind them.

They are financial instruments with a single or multiple market makers and authorised participants. They can be harder to arbitrage than the other instruments, and can trade at a premium or discount depending on the number of market markers and authorised participants. There can also be a liquidity issue, especially if there is only one market maker.

ETF Securities therefore suggests that there can be corporate governance issues with ETNs, although a potential investor should be able to insist that collateral is in place.

There are two main subsets; collateralised and uncollateralised. The uncollateralised notes are underlain by the bank balance sheet, meaning that there is issuer risk as well as counterparty risk, with the instrument fully exposed to the credit worthiness of the note issuer. It can be difficult to determine whether a note is collateralised or not.

Notes are exchange listed, but are not UCITS funds. It has yet to be decided whether they are to be UCITS-eligible.

To sum up, ETFs and ETCs are safe, transparent, secure financial instruments, while uncollateralised ETNs are unsecured senior debts that can carry balance sheet risks.

Eoin Treacy's view While one has to take into account that the original report to which this article refers originates with a large issuer of ETCs and ETFs, it reiterates the importance of doing one's due diligence before investing and perhaps limiting oneself to instruments one understands.