06. Authorized Participant and the Create Process

Authorized Participants

Authorized Participants (APs) and ETF Sponsors partner together to make the ETF system work. We can think of APs as the intermediaries between investors and the ETF Sponsor. Unlike mutual funds or hedge funds, ETF Sponsors don’t take cash to invest, nor do they deal directly with investors. ETF Sponsors take a portfolio of stocks instead of cash, and they trade with APs instead of with investors. ETF Sponsors and APs create ETF shares with the “create process”.

The “create process” involves the following steps:

1. The Authorized Participant buys stocks and bundles them in the same proportions as defined by the ETF Sponsor.
2. The AP gives these stocks to the ETF Sponsor.
3. The ETF Sponsor creates ETF shares and gives these to the AP.
4. The AP sells the ETF shares to investors.