Exchange Traded Notes (ETN) is a security that has been issued in some capital markets. In the conventional financial markets of the world, this instrument is a debt-based security by which the originator of the bonds provides the conditions for the bondholders to benefit from the debt of a certain index. If the ETN is operational in Iran's capital market, it provides the opportunity for market activists to enjoy more investment opportunities.

Key Features of ETN:
1- Each ETN has a certain base amount. Investors pay the amount called the base amount on the day of underwriting. Usually, the base amount of each note is equal to the value of the base index which is defined on it.
2- Each ETN has an indicator value which is updated at regular intervals.
3- The originator of these bonds are often reputable financial institutions such as banks and investment banks that have a high credit rating. Of course, other companies can make a request for ETN issuance if they have strong financial conditions and the ability to fulfill their financial obligations on time.
4- ETN has a certain maturity date (for example, 10 years).
5- These bonds have a secondary market and a market maker.

6- ETN has an indicator called the base index. This index is a measure for the cash settlement of the originator with the bond holder at the maturity date. For example, if the base index of ETN is the gold ounce price index in the London Commodity Exchange, the originator is required to pay the yield at the maturity of the ETN as much as the base index (the price of the gold ounce in the London Commodity Exchange) to settle the notes maturity whether the index is positive or negative.

7 - The base index cannot be manipulated by the originator and its value is announced by an impartial authority.
8- In order to manage the risk in this type of bonds, the originator calls for paying the value of the notes (according to the value of that day) to the investors before the maturity date whenever he deems that it is necessary.
9- Since the originator of ETN is often a reputable financial institution, these bonds are mostly issued without a third party guarantee.
10- The originator of ETN does not necessarily invest the financial resources resulting from the issuance in the base asset related to the base index, but the originator has the authority to invest the financial resources in other profitable areas. In this case, there are three scenarios at the ETN maturity date:
10.1 - If the yield from the investment is less than the yield of the base index, the originator compensates the notes holders for the amount of the difference between the obtained yield and the yield of the base index multiplied by the base amount from his other financial resources.
10.2- If the amount of return on investment is as much as the amount of yield on the base index, the originator pays the base amount plus the yield multiplied by the base amount to the bondholders.
10.3- If the amount of yield from the originator's investment is higher than the yield of the base index, the surplus investment return belongs to the founder.

Since the conventional model of ETN is based on usurious loans, the proposal to implement ETN is based on the guidelines of the bond power.
According to this proposal, the originator of ETN, as the attorney of the bond holders, invests the financial resources obtained from the issuance of bonds in various profitable areas on behalf of them. The originator at the maturity date of ETN (or before the maturity date by redeeming the bond at the price of the base index for that day), calculates the amount of return from the investment of financial resources. Regarding the amount of yield at maturity, there are the following three scenarios:

1- If the amount of return on investment is lower than the yield of the base index, the originator is committed to pay the amount of the difference from his financial resources to the bondholders.
2- If the amount of return on investment is as much as the amount of yield of the base index, the originator pays the same return to the bondholders.
3- If the amount of return on investment exceeds the amount of yield on the base index, the excess over the amount of return belongs to the originator as attorney's fees.

The verdict of the Shariah Committee about ETN

The issuance of ETN is permissible subject to the following conditions:
1- The originator of ETN, as the attorney of the bond holders, invests the financial resources obtained from the issuance of bonds in various profitable areas. The areas of investment are announced in the bond issuance documents.
2- At the maturity date, after calculating the final amount of return on investment, there are three scenarios:
2.1- If the amount of return on reinvestment is lower than the yield of the base index, the originator compensates the notes holders for the amount of the difference between the obtained yield and the yield of the base index multiplied by the base amount from his other financial resources.
2.2- If the amount of return on investment is as much as the amount of yield on the base index, the originator pays the base amount plus the yield multiplied by the base amount to the bondholders.

2.3- If the amount of return from the investment of the originator is more than the return value of the base index, in this case, the originator, as the attorney of the maturity bondholders, take parts of the excess (for example, 50%) as attorney's fees and pays the rest to the bondholders. It is necessary to disclose the share of each party from the surplus profit in the released documents.

3- If the originator intends to include the bond redemption right in the released documents, it is permissible for the originator to require this right before the maturity date, in compliance with the conditions announced by the Security and Exchange Organization.
4- In order to avoid information asymmetry in the calculation of the surplus amount, the originator is obliged to show the client's share of the surplus amount to the investors at regular intervals and through a transparent mechanism in the trading markets.
5- It is essential that if this issue is implemented, the Secretariat of the Shariah Committee is obliged to submit a correct periodic monitoring report on the implementation of the resolutions of the Specialized Shariah Committee in this regard.