Exchange Traded Notes (ETNs)

ETN is an acronym for Exchange Traded Notes, i.e. a security traded on a stock exchange.

An ETN gives you a return on an underlying market

An ETN is a so-called financial instrument which is constructed to give you a return related to the growth of an underlying market such as the Oil market*. This way you can invest in the increase in value of the oil market without buying physical oil.

An ETN can be geared

An ETN can be set up to have a geared exposure against the market. Geared means borrowed. If you invest in a geared product, you borrow money simultaneously, resulting in greater exposure than if you were to invest solely the money you currently have available.

Can be affected by foreign exchange rates

Some ETNs also involve exposure to foreign currency as well as to the underlying market. An ETN does not pay out a regular coupon and is not capital protected.

NOTE! The risk is very high, so you must not invest more than you can afford to lose..

*The return will deviate slightly from the underlying market due to an administration fee that will be deducted.

We offer a number of ETNs listed on the Oslo Stock Exchange. These are bought and sold in the same way as a share in our online equity trading solution. You can purchase the products at the applicable market price during the exchange’s opening hours.

Read more about which ETNs we offer here.

When buying or selling on the stock exchange, the regular brokerage fee is paid to your broker. If you choose to realise your profit/loss by redeeming the shares against DNB Bank ASA outside of the stock exchange, a redemption fee will be calculated on the basis of the daily market value.

An investment in an ETN requires you to have a Norwegian Central Securities Depository account. A fee for the Norwegian Central Securities Depository account(s) will incur depending on the total holding for one national identity number or one registration number.

Yes, you must have a trading account (for money) and a VPS account (for securities) in order to trade on the stock exchange.

Read more about the Norwegian Central Securities Depository (VPS), Euronext Securities Oslo and trading accounts here.

Gearing means borrowed. If you buy a product with gearing of x2, you can borrow the same amount as you are investing. This doubles your potential profits, and doubles potential losses.

You can read more about gearing here.

Example:

If you have a gearing factor of 2 (=200%), for every hundred kroner you invest, you could make profits as if you had invested two hundred kroner. But, if the market drops, you could double your losses.

The gearing factor is usually set on a daily basis. This is an important factor to consider as the return over time can deviate considerably from the gearing factor multiplied by the underlying return.

Daily adjustment of the exposure is necessary in order to maintain a fixed daily gearing factor.

NOTE! A high gearing ratio results in high risk. You must be prepared to possibly lose your entire invested amount.

There are certain factors that investors need to be aware of for where commodities are the underlying asset of the ETN.

In contrast to shares, which are ‘perpetual’ physical ownership interests in a company, commodities are traded as time-limited contracts.

Forward and Futures

The contracts traded are called forward or futures contracts. Commodities are traded in the market as an agreement for a physical delivery (forward) or a cash settlement (future) on a defined date in the future. This is by far the most common method for trading commodities in the market.

Rolling

This involves an ETN obtaining its exposure from commodities having to switch the underlying contract at regular intervals, because they will eventually expire. This switch, where the old contract is sold and the new one bought, is called a roll. A roll can comprise of a new contract where each unit is more costly than the old (contango in the forward curve). A roll can also comprise of the new contract costing less per unit than the old (backwardation in the forward curve).

Renewing contracts

When discussing the ‘electricity price’ or ‘oil price’, we usually debate spot price or the commodity contract with the shortest delivery time. When the ‘electricity price’ (over a longer time period) has changed by x per cent or the ‘oil price’ (over a longer time period) has changed by y per cent, this does not generally indicate a return that is achievable for an investor. The contracts will eventually expire and need to be replaced with new contracts with a longer duration, where unit price may differ. However, this will not affect the value of the product itself.

Rebalanced every day to maintain the gearing factor

In the same way as ETNs based on shares or share indices, commodity-based products must also be rebalanced every day in order to maintain the gearing factor. In addition, ETNs with commodities as the underlying asset carry a currency risk, since the underlying commodity contract is often traded in currencies other than NOK.

Below is a general description of tax conditions that apply when buying, holding and realising an ETN for investors residing or domiciled in Norway. The description is a general overview, based on applicable Norway tax legislation. The description is not an attempt to provide exhaustive legal or tax advice directed at the individual investor. Potential investors should therefore consult their own professional adviser.

DNB takes no responsibility for any errors or omissions in this tax description or decisions that are wholly or partly based on the description.

Tax on investors that are not limited companies

For non-professionals and other investors that are not limited companies or equivalent companies, capital returns resulting from sales or redemption of shares in an ETN will be taxable in relation the shareholder’s holdings. Equally, deductions will be given for losses from selling or redeeming such shares.

Costs that the shareholder has incurred to acquire the shares (brokerage fees) will be included in the cost price and reduce any possible return as a result of the realisation.

The value of shares in ETNs are included in the basis for wealth tax.

Limited companies and equivalent companies

The tax exemption model applies for financial derivatives which generally derive their value from underlying shares etc. which themselves fall under the tax exemption model. When the tax exemption model comes into use, gains from realising the derivative are tax-free, while any losses give a deduction right. Outside of the tax exemption model, profits are taxed at 35.20 per cent (22 per cent x 1.60 in upward adjustment factor)*, while losses give an equivalent deduction right.

Commodities will not fall in under the tax exemption model. Shares domiciled outside the EEA also typically fall outside of the tax exemption model. ETNs with these underlying assets will therefore typically fall outside of the tax exemption model. ETNs with underlying shares domiciled within the EEA will likely fall under the tax exemption model (where the share itself is also subject to the tax exemption model). But since the relevant rules and legislation are based on criteria that involves valuation and which can also change over time, there is no guarantee that this understanding will be used as a basis for the equation.

Shareholders that are Norwegian limited companies are not obliged to pay wealth tax.

*Tax year 2022

In geared products, the number of shares to be shorted must be borrowed. A borrowing cost will normally be added to a share loan measured in per cent p.a. of the shares’ value. This cost is therefore also reflected in products that give a short exposure to shares or share indices.

Note that the borrowing cost will depend on the number of times the shares in question are shorted. For a x2 product, for example, the borrowing costs will be calculated twice (since shares are being shorted for double the amount of the actual product), for a x3 product, the borrowing costs are calculated three times etc.

Read more about shorting here

We offer a number of ETNs listed on the Oslo Stock Exchange. These are bought and sold in the same way as a share in our online equity trading service. You can purchase the products at the applicable market price during the exchange’s opening hours.

Read more about which ETNs we offer here.

When buying or selling on the stock exchange, the regular brokerage fee is paid to your broker. If you choose to realise your profit/loss by redeeming the shares against DNB Bank ASA outside of the stock exchange, a redemption fee will be calculated on the basis of the daily market value.

An investment in an ETN requires you to have a VPS account. A fee for the VPS account(s) will incur depending on the total holding for one national identity number or one registration number.

Yes, you must have a trading account (for money) and a VPS account (for securities) in order to trade on the stock exchange.

Read more about Euronext Securities Oslo (VPS) and trading accounts here.

Gearing means borrowed. If you buy a product with gearing of x2, you can borrow the same amount as you are investing. This doubles your potential profits, and doubles potential losses.

You can read more about gearing here.

Example:

If you have a gearing factor of 2 (=200%), for every hundred kroner you invest, you could make profits as if you had invested two hundred kroner. But, if the market drops, you could double your losses.

The gearing factor is usually set on a daily basis. This is an important factor to consider as the return over time can deviate considerably from the gearing factor multiplied by the underlying return.

Daily adjustment of the exposure is necessary in order to maintain a fixed daily gearing factor.

NOTE! A high gearing ratio results in high risk. You must be prepared to possibly lose your entire invested amount.

There are certain factors that investors need to be aware of for where commodities are the underlying asset of the ETN.

In contrast to shares, which are ‘perpetual’ physical ownership interests in a company, commodities are traded as time-limited contracts.

Forward and Futures

The contracts traded are called forward or futures contracts. Commodities are traded in the market as an agreement for a physical delivery (forward) or a cash settlement (future) on a defined date in the future. This is by far the most common method for trading commodities in the market.

Rolling

This involves an ETN obtaining its exposure from commodities having to switch the underlying contract at regular intervals, because they will eventually expire. This switch, where the old contract is sold and the new one bought, is called a roll. A roll can comprise of a new contract where each unit is more costly than the old (contango in the forward curve). A roll can also comprise of the new contract costing less per unit than the old (backwardation in the forward curve).

Renewing contracts

When discussing the ‘electricity price’ or ‘oil price’, we usually debate spot price or the commodity contract with the shortest delivery time. When the ‘electricity price’ (over a longer time period) has changed by x per cent or the ‘oil price’ (over a longer time period) has changed by y per cent, this does not generally indicate a return that is achievable for an investor. The contracts will eventually expire and need to be replaced with new contracts with a longer duration, where unit price may differ. However, this will not affect the value of the product itself.

Rebalanced every day to maintain the gearing factor

In the same way as ETNs based on shares or share indices, commodity-based products must also be rebalanced every day in order to maintain the gearing factor. In addition, ETNs with commodities as the underlying asset carry a currency risk, since the underlying commodity contract is often traded in currencies other than NOK.

Below is a general description of tax conditions that apply when buying, holding and realising an ETN for investors residing or domiciled in Norway. The description is a general overview, based on applicable Norway tax legislation. The description is not an attempt to provide exhaustive legal or tax advice directed at the individual investor. Potential investors should therefore consult their own professional adviser.

DNB takes no responsibility for any errors or omissions in this tax description or decisions that are wholly or partly based on the description.

Tax on investors that are not limited companies

For non-professionals and other investors that are not limited companies or equivalent companies, capital returns resulting from sales or redemption of shares in an ETN will be taxable in relation the shareholder’s holdings. Equally, deductions will be given for losses from selling or redeeming such shares.

Costs that the shareholder has incurred to acquire the shares (brokerage fees) will be included in the cost price and reduce any possible return as a result of the realisation.

The value of shares in ETNs are included in the basis for wealth tax.

Limited companies and equivalent companies

The tax exemption model applies for financial derivatives which generally derive their value from underlying shares etc. which themselves fall under the tax exemption model. When the tax exemption model comes into use, gains from realising the derivative are tax-free, while any losses give a deduction right. Outside of the tax exemption model, profits are taxed at 35.20 %* (22 % x 1.60 in upward adjustment factor), while losses give an equivalent deduction right.

Commodities will not fall in under the tax exemption model. Shares domiciled outside the EEA also typically fall outside of the tax exemption model. ETNs with these underlying assets will therefore typically fall outside of the tax exemption model. ETNs with underlying shares domiciled within the EEA will likely fall under the tax exemption model (where the share itself is also subject to the tax exemption model). But since the relevant rules and legislation are based on criteria that involves valuation and which can also change over time, there is no guarantee that this understanding will be used as a basis for the equation.

Shareholders that are Norwegian limited companies are not obliged to pay wealth tax.

*tax rate 35.20 % applies to tax year 2022