Prior to the Rise of Iron expansion, blue (or Rare) engrams in Destiny could only give you either Rare or Legendary gear. While the chances of the blue engram turning into a Legendary item were pretty slim, it was a well-known fact that all tiers of engrams could give you either an item of that same tier color, or an item from the next tier of rarity. Simply put, this meant that there was absolutely no chance that a blue engram could turn into an Exotic item. In fact, if you look at the description of a blue engram, it only indicate that it has a chance of giving you a Legendary item, but not an Exotic one.
However, with Rise of Iron, it looks like Rare engrams do have a chance (though a very, very slim one) of netting you a piece of Exotic gear. Here’s some video proof of a Rare engram transforming into an Exotic, courtesy of Polygon:
So there you have it. Don’t just toss your Rare engrams aside when you pick them up from the new Strikes in Rise of Iron. You never know when you might get surprised with a cool piece of Exotic gear.
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