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Written by Wilfred Ling
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Tuesday, 16 September 2008 |
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Exchange Traded Notes are debt instrument issue and traded on the stock exchange. Unlike Exchange Traded Fund, ETN investors are subjected to the credit risk of the issuer. As Lehman Brothers file for bankruptcy, the question as to what happens to its 3 ETNs has arised. The 3 ETNs are ticker RAW, EOH and PPE. As I checked the liquidity, for the past few months, there has been little liquidity. Today as this moment in writing, there has been zero liquidity. I am unsure what that really means. Perhaps there are tons of seller but no buyers. The lesson is to invest in a small amount in ETNs only. Best to avoid it altogether. Avoid investing an ETN altogether is recommended because the additional credit risk of the issuer does not translate to a potential higher reward to the investor. If there is absolutely no upward potential for this additional risk, why bother to take on this additional risk? For more information about Lehman Brothers' ETNs, see Lehman Meltdown Raises ETN Questions
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