Difference between revisions of "Authorized participants"

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'''Authorized participants'''  or '''APs''' are institutional firms who, in cooperation with the issuer of an [[exchange-traded fund]], help provide liquidity for an ETF through the creation and redemption of ETF shares.{{Citation needed}}
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'''Authorized participants'''  or '''APs''' are institutional firms who, in cooperation with the issuer of an [[exchange-traded fund]], help provide liquidity for an ETF through the creation and redemption of ETF shares. <ref>{{Cite web|author=James Chen|title=Authorized Participant|url=https://www.investopedia.com/terms/a/authorizedparticipant.asp|publisher=Investopedia|date=Jan. 9, 2018}} retrieved 5/30/2020.</ref>
  
 
By agreement with the ETF issuer, APs have the right (though not necessarily an obligation) to exchange shares of the ETF for a basket of of the underlying assets of the ETFS such as stocks or bonds.   
 
By agreement with the ETF issuer, APs have the right (though not necessarily an obligation) to exchange shares of the ETF for a basket of of the underlying assets of the ETFS such as stocks or bonds.   
  
 
APs are not compensated by ETF issuers, but nonetheless have a profit motive to provide liquidity to ETF investor.  When the market price of an ETF diverges from the net asset value of the underlying assets, APs can collect an arbitrage profit by buying/selling the underlying assets in the market while also creating/redeeming shares of the ETF itself.
 
APs are not compensated by ETF issuers, but nonetheless have a profit motive to provide liquidity to ETF investor.  When the market price of an ETF diverges from the net asset value of the underlying assets, APs can collect an arbitrage profit by buying/selling the underlying assets in the market while also creating/redeeming shares of the ETF itself.
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==References==
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{{reflist}}
  
 
==External links==
 
==External links==

Revision as of 10:53, 30 May 2020

Authorized participants or APs are institutional firms who, in cooperation with the issuer of an exchange-traded fund, help provide liquidity for an ETF through the creation and redemption of ETF shares. [1]

By agreement with the ETF issuer, APs have the right (though not necessarily an obligation) to exchange shares of the ETF for a basket of of the underlying assets of the ETFS such as stocks or bonds.

APs are not compensated by ETF issuers, but nonetheless have a profit motive to provide liquidity to ETF investor. When the market price of an ETF diverges from the net asset value of the underlying assets, APs can collect an arbitrage profit by buying/selling the underlying assets in the market while also creating/redeeming shares of the ETF itself.

References

  1. James Chen (Jan. 9, 2018). "Authorized Participant". Investopedia. https://www.investopedia.com/terms/a/authorizedparticipant.asp. retrieved 5/30/2020.

External links