Understanding iPath ETNs
iPath Exchange Traded Notes (ETNs) offer investors an efficient way to access difficult-to-reach market benchmarks or strategies. iPath ETNs are senior, unsecured debt securities issued by Barclays Bank PLC.
While ETNs are not equities or index funds, they do share several characteristics. Like equities, they trade on an exchange and can be shorted¹ on an uptick or a downtick, subject to the ability to locate shares to borrow. Like an index fund, they are linked to the return of a benchmark index.
Structure of iPath ETNs
iPath ETNs can be characterized by the following key features:
|Payment at maturity||Investors who hold iPath ETNs to maturity will receive a cash payment at maturity that is linked to the performance of the corresponding index during the period beginning on the inception date and ending at maturity, less investor fees.|
|Redemption prior to maturity||Investors can redeem a large block of iPath ETNs, typically 25,000 to 50,000 units, directly to Barclays Bank PLC before their maturity date, subject to the procedures described in the relevant prospectus². A redemption charge may apply for redemption of certain series of iPath ETNs.|
|Coupons||Interest will not be paid during the term of most iPath ETNs. iPath Global Emerging Markets Strategy (GEMS) ETNs are designed to pay a monthly coupon. iPath S&P MLP ETNs are designed to pay a quarterly coupon.|
|Dividend Distributions||The iPath ETNs currently available do not make dividend distributions.|
|Investor fee and additional costs||The investor fee is subtracted on a daily basis from the closing indicative value of each iPath ETN at a cumulative annual rate equal to the Yearly Fee. Because the investor fee and other applicable costs reduce the amount of an investor's return at maturity or upon redemption, if the value of the underlying index decreases or does not increase significantly, investors may receive less than the principal amount of the investment at maturity or upon redemption. For a more complete description of how the investor fee and other applicable costs are calculated, please see the applicable product page and pricing supplement. Additional costs, such as rolling costs, may apply to certain iPath ETNs. Please refer to the relevant prospectus for more information.|
|No principal protection||Investors will receive a cash payment at maturity or upon redemption linked to the performance of the corresponding index, less investor fees and other applicable costs. The index may go up or down. Even if the index goes up, investors may not recover their principal once investor fees and costs are deducted.|
|Ratings||The iPath ETNs are not rated, but are backed by the credit of Barclays Bank PLC.³ Credit ratings relate solely to the issuer, Barclays Bank PLC, and not to the ETNs.|
|Unsecured debt||iPath ETNs are senior, unsecured debt securities issued by Barclays Bank PLC.|
|Voting rights||Because the iPath ETNs are debt securities, they do not have any voting rights.|
Differences and similarities between ETNs and Exchange Traded Funds (ETFs)
Both ETNs and ETFs provide investors access to the returns of various market benchmarks. However, iPath ETNs are debt securities issued by Barclays Bank PLC, whereas ETFs are typically registered investment companies collateralized by an underlying portfolio of securities. Other differences and similarities are noted in the following chart:
|Liquidity||Daily on exchange||Daily on exchange|
|Registration||Securities Act of 1933||Investment Company Act of 1940|
|Recourse||Issuer credit||Portfolio of securities|
|Principal risk||Market and issuer risk||Market risk|
|Tracking Error*||Low to moderate||Low|
|Tax Issues||Capital gains only realized upon the sale, redemption or maturity of the ETN. No dividend distributions. Interest will not be paid during the term of most iPath ETNs (iPath Global Emerging Markets Strategy (GEMS) ETNs are designed to pay a monthly coupon and iPath S&P MLP ETNs are designed to pay a quarterly coupon).||Potential exposure to capital gains and losses of portfolio, although creation/redemption mechanism works to minimize this. Dividends and interest income passed through to shareholders.|
|Transparency||Performance of ETNs generally depends on the return of the underlying index, less applicable fees and costs. There is typically not an underlying portfolio of securities that investors have recourse to.||Performance of ETFs generally depends on the return on a portfolio of securities or instruments held by the fund, less applicable fees and costs. Holdings of the fund are disclosed by the fund sponsor.|
|Accessibility||Access through any brokerage account (certain firms may have restrictions on product availability on their platforms)||Access through any brokerage account (certain firms may have restrictions on product availability on their platforms)|
|Institutional size redemption||Daily to the issuer||Daily via custodian|
|Short sales¹||Yes, on an uptick or a downtick||Yes, on an uptick or a downtick|
* Tracking error refers to the performance difference of an investment versus its benchmark over a given time period.
Barclays Bank PLC and its subsidiary undertakings (taken together, the "Group") is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. The Group operates in many countries around the world. The whole of the issued ordinary share capital of Barclays Bank PLC is beneficially owned by Barclays PLC, which is the ultimate holding company of the Group.
Barclays Capital Inc. acts as the issuer's agent in connection with the distribution of the iPath ETNs. Barclays Capital Inc. is an affiliate of Barclays Bank PLC and is a registered US broker-dealer regulated by the SEC and the FINRA.
BlackRock's broker-dealer affiliate, BlackRock Investments, LLC, engages in the promotion of iPath ETNs to intermediaries including registered broker-dealers and registered investment advisors; and to end-users, such as mutual funds, hedge funds and insurance companies.
Regulation of iPath ETNs
iPath ETNs are registered under the Securities Act of 1933. They are not regulated by the Commodity Futures Trade Commission (CFTC), and you do not need a Series 3 License to sell them. However, futures contracts notionally underlying the relevant market index may be regulated by the CFTC.
¹ With short sales, an investor faces the potential for unlimited losses as the security's price rises.
² The issuer may from time to time in its sole discretion reduce, in part or in whole, the minimum redemption amount. Any such reduction will be applied on a consistent basis for all holders of units at the time the reduction becomes effective.
³ Credit ratings are subject to revision or withdrawal at any time by the assigning rating organization, which may have an adverse effect on the market price or marketability of the iPath ETNs.
Selected Risk Considerations
An investment in the iPath ETNs described herein (the ETNs) involves risks. Selected risks are summarized here, but we urge you to read the more detailed explanation of risks described under Risk Factors in the applicable prospectus supplement and pricing supplement.
You May Lose Some or All of Your Principal: The ETNs are exposed to any change in the level of the underlying index, or the Volume Weighted Average Price ("VWAP") level, in the case of the iPath® S&P MLP ETN, between the inception date and the applicable valuation date. Additionally, if the level of the underlying index, or the VWAP level in the case of the iPath® S&P MLP ETN, is insufficient to offset the negative effect of the investor fee and other applicable costs, you will lose some or all of your investment at maturity or upon redemption, even if the value of such index, or the VWAP value in the case of the iPath® S&P MLP ETN, has increased or decreased, as the case may be. Because the ETNs are subject to an investor fee and any other applicable costs, the return on the ETNs will always be lower than the total return on a direct investment in the index components. The ETNs are riskier than ordinary unsecured debt securities and have no principal protection.
Credit of Barclays Bank PLC: The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of Barclays Bank PLC will affect the market value, if any, of the ETNs prior to maturity or redemption. In addition, in the event Barclays Bank PLC were to default on its obligations, you may not receive any amounts owed to you under the terms of the ETNs.
A Trading Market for the ETNs May Not Develop: Although the ETNs are listed on NYSE Arca, a trading market for the ETNs may not develop and the liquidity of the ETNs may be limited, as we are not required to maintain any listing of the ETNs.
No Interest Payments from the ETNs: You may not receive any interest payments on the ETNs.
Restrictions on the Minimum Number of ETNs and Date Restrictions for Redemptions: You must redeem at least 25,000 or 50,000 (depending on the series) ETNs of the same series at one time in order to exercise your right to redeem your ETNs on any redemption date. You may only redeem your ETNs on a redemption date if we receive a notice of redemption from you by certain dates and times as set forth in the pricing supplement.
Uncertain Tax Treatment: Significant aspects of the tax treatment of the ETNs are uncertain. You should consult your own tax advisor about your own tax situation.