UBS created its ETRACS ETNs and may have marketed and sold them to investors seeking low risk without explaining the risks involved in those securities.
Leveraged ETFs and ETNs carry significant risk and are not suitable for all investors. If your broker or financial advisor sold you a leveraged ETF or ETN, you may be able to recover losses through a FINRA arbitration claim. Contact Silver Law Group at ssilver@silverlaw.com or toll free at (800) 975-4345 to discuss your rights and options.
An ETN is a type of security that is issued as a senior debt note. Its returns are based on an underlying index that the note tracks. ETNs are not secured and do not provide a stake in the index like an Exchange Traded Fund (ETF). Like some ETFs, ETNs can use leverage.
Exchange Traded Notes have maturity dates like bonds, but they don’t pay interest to investors like a bond. When an ETN matures, investors are paid cash based on the performance of the index the ETN tracked.
These complex products are not suitable for all investors. Stockbrokers have a duty to accurately explain all risks and only make the recommendation if it is suitable for an investor based on several factors including their risk tolerance and investment objectives. These financial products are created by Wall Street firms and can be financially lucrative or provide commissions to the advisors who sell them.
ETN Risk
One of the risks associated with ETNs is that the issuer can redeem them early in some circumstances in order to prevent further losses. A mandatory redemption will occur when the price of an ETN falls below a minimum indicative value, which can be a certain price per share, or a price relative to the ETN’s previous closing price or it’s valuation in the previous month.
ETNs can also be electively redeemed even if the prospectus doesn’t require it.
When a redemption occurs, the issuer accelerates the ETN and pays investors based on the reduced value of the note.
UBS ETRACS ETNs Mandatory Redemptions
UBS has redeemed many of its ETNs since the steep market drop associated with the coronavirus pandemic starting in February, 2020. UBS has announced the mandatory redemption of: MLPZ, HOML, SMHD, BDCL, DVHL, LBDC, HDLV, LMLP, MRRL, and MORL. All these funds used leverage and invested in high-risk areas.
FINRA Arbitration Claims To Recover ETN Losses
Investors may be able to recover losses from UBS ETRACS ETNs through FINRA’s arbitration forum. FINRA registered stockbrokers and advisors are required to understand their clients investor profile and recommend suitable investments to them and to accurately represent the risks involved.
UBS is one of the largest brokerage firms in the country and has been the subject of many regulatory investigations and disciplinary actions. Silver Law Group has been involved in FINRA arbitration cases on behalf of clients who suffered losses from the purchase of Puerto Rican bonds sold by UBS, as well as other claims.
Our attorneys are currently investigating UBS regarding the sale of its Yield Enhancement Strategy (YES), an options overlay program that was allegedly sold as very safe, but caused some clients significant losses.
Do You Have Losses Related To UBS ETRACS ETNs?
Silver Law Group’s nationally-recognized attorneys represent investors in securities arbitration claims against firms such as UBS for stockbroker misconduct, misrepresentation, unsuitability, and other causes.
Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice. Please contact Scott Silver for a no-cost consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.