Creation and redemption of ETF units
Creation and redemption of ETF units takesplace in the primary market and are direct transactions between the ETF managers and Authorised Participants.
Creation is the process by which additional units are introduced to the secondary market. Authorised Participants create fund units in large increments —known as creation units —by assembling the underlying securities of the fund in their appropriate weights to reach creation unit size (e.g. 50,000 units) and then delivering those securities and/or cash to the fund. In return, the Authorised Participant receives units, which they can then sell in the secondary market, increasing the supply of units that can be traded by other investors.
Authorised Participants also have the ability to redeem units through the same process in reverse. The Authorised Participant collects large increments of units —known as redemption units —in the secondary market and then delivers them to the fund in exchange for cash and/or the underlying securities in their appropriate weighting equalling the redemption unit (e.g. 50,000 units). This reduces the supply of units available in the secondary market.