FINRA Alert: Exchange-traded Notes

by InvestorLawyers on August 3, 2012

in Arbitration,ETF,FINRA,Retirement,SEC,Securities Fraud,Suitability

Stock fraud lawyers encourage investors to read the Financial Industry Regulatory Authority (FINRA)’s new Investor Alert, which was announced on July 10. This alert, titled “Exchange-traded Notes — Avoid Unpleasant Surprises,” is meant to help investors become more informed of the risks and features of exchange-traded notes, or ETNs. This investor alert can help investors make smart decisions about investing in ETNs. And if you’ve already invested in an ETN, it can also help you determine if you were unsuitably recommended exchange-traded notes by your broker or adviser.

FINRA Alert: Exchange-traded Notes

ETNs are, according to the FINRA alert, a type of debt security that trades on exchanges and promises a return that is linked to a market index or some other benchmark. Unlike exchange-traded funds (ETFs), however, exchange-traded notes don’t replicate or approximate the performance of that index through the purchase or holding of assets. According to stock fraud lawyers, brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market, even if valid, may or may not be a conservative trading strategy. FINRA wants investors to be aware of the fact that an ETN’s market price can deviate from its indicative value, and in some cases this deviation is significant.

FINRA’s Vice President for Investor Education, Gerri Wals, stated that “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 full understand and are comfortable with the risks.”

Risks associated with exchange-traded notes include market risk, credit risk, liquidity risk, price-tracking risk, conflicts of interest, holding-period risk and call, early redemption and acceleration risk. According to securities arbitration lawyers, many investors are not made aware of all these risks when receiving recommendations from financial professionals.

If you suffered significant losses in a risky ETN because of the recommendation of your broker or advisor and were not made aware of the risks associated with the investment, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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