Creation and redemption is the primary market process in which an authorised participant delivers a basket of securities or cash to an ETF in exchange for new ETF units (creation), or returns units for the basket (redemption). It keeps the exchange price close to the net asset value through arbitrage.
ETF (Exchange-traded fund)An exchange-traded fund (ETF) is an investment fund whose units trade on a stock exchange during the day, usually tracking an index. In Europe most ETFs are UCITS; their units are created and redeemed in the primary market by authorised participants, while other investors buy and sell on exchange.
Authorised participant (AP)An authorised participant (AP) is a financial firm with a contract with an ETF issuer that allows it to create and redeem ETF units directly with the fund. APs and market makers keep the ETF's exchange price close to its net asset value by arbitrage and provide liquidity on exchange.
NAV (Net asset value)Net asset value (NAV) is the value of a fund's assets minus its liabilities. NAV per share, or per unit, is the NAV of a share class divided by the number of shares in issue, and it is the price at which investors subscribe to and redeem from an open-ended fund.
DVP (Delivery versus payment)Delivery versus payment (DVP) is a settlement mechanism that links the transfer of securities to the transfer of cash, so that delivery happens if and only if payment happens. It removes principal risk in securities settlement and is the standard for trades settled in central securities depositories and TARGET2-Securities (T2S).
Authorised participant (AP)An authorised participant (AP) is a financial firm with a contract with an ETF issuer that allows it to create and redeem ETF units directly with the fund. APs and market makers keep the ETF's exchange price close to its net asset value by arbitrage and provide liquidity on exchange.
ETF (Exchange-traded fund)An exchange-traded fund (ETF) is an investment fund whose units trade on a stock exchange during the day, usually tracking an index. In Europe most ETFs are UCITS; their units are created and redeemed in the primary market by authorised participants, while other investors buy and sell on exchange.