Barclays plans to list first Japan ETNs

Barclays Capital is to list nine exchange-traded notes (ETNs) on the Tokyo Stock Exchange through its exchange-traded product platform iPath, making them the first ETNs and foreign securities listed in Japan

Japan's first exchange-traded notes (ETNs) will be listed on the Tokyo Stock Exchange (TSE) in two phases, with the first two ETNs set to be listed on August 23 and giving exposure to volatility and commodities. A further seven ETNs will then be added on the exchange on September 6, linked to different commodity sectors such as precious metals, energy, agriculture and industrial metals.

"ETNs can be used to access markets that are difficult to access directly for exchange-traded funds (ETFs), such as some commodities or volatility indexes, but we can provide a commodity-linked product through an ETN simply," says Yasuhiro Ishibashi, head of investor solutions sales division for Japan at Barclays Capital in Tokyo.

"Exchange-traded products (ETFs and ETNs) are a big market that has grown a lot and has reached over US$1 trillion but ETNs remain a small percentage [within] ETPs and we see significant potential in developing the ETN market further," says Ishibasi.

The ETNs will be listed in the form of Japan depositary receipts (JDRs), which are a structure required for an ETN listing in Japan. As such, JDRs are beneficiary certificates issued by trust banks in exchange for foreign ETNs as trust assets and are treated as securities.

"There has previously been no regulatory framework to list ETNs in Japan. The Tokyo Stock Exchange and the Japanese FSA have worked together to create a new regulatory framework for listing ETNs, which came out in April," says Ishibashi.

"According to the TSE's regulation, we used the JDR format and decided to list nine ETN products, which will allow us to use the same trading features as stocks. It's very efficient as JDR can be treated as a normal listed stock using the same taxation system for individual investors."

The bank aims to launch more Asian-orientated products in Japan in the future, such as products linked to Asian or Japanese stocks and currencies, including 40 to 50 ETNs in the next two to three years, targeting US$1 billion.

"Through ETNs we can offer a broad range of index-linked products," says Ishibashi. "ETNs do not have to trade and hold positions on the underlying, therefore we can create ETN products that are linked to either volatility or an index flexibly."

The TSE says it will continue working to diversify the ETF market in Japan and "promote the listing of other financial instruments such as ETNs". The nine ETN listings will also bring the total of ETFs and ETNs listed on the exchange to 112, according to the TSE.

This article first appeared in Structured Products