Common use of Risk of Trading Exchange Clause in Contracts

Risk of Trading Exchange. Traded Notes (ETNs) ETN is a type of unsecured, unsubordinated debt security issued by an underwriting bank, designed to provide investors access to the returns of various market benchmarks. The returns of ETNs are usually linked to the performance of a market benchmark or strategy, minus applicable fees. Similar to other debt securities, ETNs have a maturity date and are backed only by the credit of the issuer. The Customer can buy and sell the ETNs on the exchange or receive a cash payment at the scheduled maturity or may early redeem the ETNs directly with the issuer based on the performance of the underlying index less applicable fees, with redemption restrictions, such as the minimum number of ETNs for early redemption, may apply. There is no guarantee that the Customer will at maturity or upon an earlier repurchase, receive the initial investment back or any return on that investment. Significant adverse monthly performances for the Customer's ETNs may not be offset by any beneficial monthly performances. The issuer of ETNs may have the right to redeem the ETNs at the repurchase value at any time. If at any time the repurchase value of the ETNs is zero, the Customer's investment will become worthless. ETNs may not be liquid and there is no guarantee that the Customer will be able to liquidate the Customer’s position whenever the Customer wishes. Although both Exchange Traded Funds and ETNs are linked to the return of a benchmark index, ETNs as debt securities do not actually own any assets they are tracking. Instead, the ETN represents a promise from the issuer to pay investors the theoretical allocation of the return reflected in the benchmark index. It provides limited portfolio diversification with concentrated exposure to a specific index and the index components. In the event that the ETN issuer defaults, the potential maximum loss could be 100% of the investment amount and no return may be received. The value of the ETN may drop despite no change in the underlying index, instead the drop may be due to a downgrade in the issuer's credit rating. Therefore, by buying ETNs, the Customer gets direct exposure to the credit risk of the issuer and would only have an unsecured bankruptcy claim if the issuer declares bankruptcy. The principal amount is subject to the periodic application of investor fee or any applicable fees that can adversely affect returns. The Customer may have leveraged exposure to the underlying index, depending on the product feature. The value of ETNs can change rapidly according to the gearing ratio relative to the underlying assets. The Customer should be aware that the value of an ETN may fall to zero resulting in a total loss of the initial investment.