what's the difference between ETF and ETN?

The report below says a few Lehman ETN's have been de-listed since '08 and are now being settled.

If a Barclay's or another major current issuer of ETN's defaulted, would the put owners be able to trade out during the bankruptcy period or would there be no market for the options? I can't find mention of this scenario in a prospectus I checked.

“The three ETNs were Opta Lehman Commodity, Agriculture and Private Equity. In September 2008, these ETNs halted trading when Lehman Brothers failed. Currently, the final results are being sorted out, but it appears that Lehman ETN holders will receive 2 cents on the dollar from their original investment.”

http://historysquared.com/2011/11/04/etfs-as-tail-risk-trades/

 

Interesting. I'm curious as to whether or not the retail investors will get hurt vs. the real primary shareholders who are the market makers and APs. I'd be willing to bet (also be willing to be wrong) that the retail guys were able to get out at close to the halt price and the MM's were the ones who got screwed.

But I don't know. This is one of the main differences between an ETN and an ETF - ETNs are notes and the credit worthiness of the issuer must be taken into account.

 

It looks like the Lehman ETN brand may have been too small for options. But if anyone remembers these, please advise.

Maybe no optioned ETN has gone under yet. If such an event means that all long options are worthless with eveything else, then MM's would have huge risk. But it would be bad for everyone. SSF's, too.

This is a description of Lehman's brand.

http://seekingalpha.com/article/653...n-market-with-opta-commodities-private-equity

"Still, the likelihood of Lehman Brothers going bankrupt is small—the company retains an A-plus rating on its debt from Standard & Poor's and an A-1 ranking from Moody's ratings service." February 20, 2008

 

In the unlikely event of a Barclay's failure I think iPath would be vauable to someone else so the ownership of the brand would be sold off and the notes continued.

But if the notes became de-listed during a bankruptcy period, that might make problems for investors (and probably the OCC) in trying to cash out of long put positions.

 

MM's go home flat (or hedged). The only people that carry risk is the issuer and the shareholder.

 

If Barclay's suddenly failed I don't think that as an issuer of an ETN they hold any more risk than if they weren't the issuer.

In fact a zero value of all iPath ETN's might benefit them in bankruptcy. If Barclay's went under and their ETN's weren't bought by anyone (as when Barclay's declined to accept the Lehman ETN's), then the notes would just be worthless or near worthless.

I assume the OCC would handle this like any bankruptcy with respect to cash-settling all puts. But I think there could be complications if there are more claims for contracts than there are shares of the ETN outstanding at the time of bankruptcy.