07. Redeeming Shares

Redeem Process

When individual investors wish to divest their holdings in an ETF, they can sell their shares to other investors on the stock exchange, like they would with a stock. This is the same process for investors of closed end mutual funds.

To exchange ETF shares for their underlying stocks, this requires what’s called the “redeem process”, and is a transaction between ETF Sponsor and APs. The redeem process takes ETF shares out of circulation, and puts the underlying stocks back into the market.

The redeem process involves the following steps

1. The AP buys ETF shares from investors in the stock market.
2. The AP trades these ETF shares with the ETF Sponsor in exchange for the original stocks.
3. The AP sells these stocks on the stock exchange.