Definition of authorised participant

Authorised participants are essential to building exchange traded funds since they create and redeem the ETF shares, usually in exchange for baskets of the underlying securities, from the ETF sponsor.

APs typically sign on to support ETFs because they believe they can profit by “arbitraging” small differences between the price of the fund’s shares and the underlying securities being tracked.

"If the ETF price trades above the NAV [net asset value, or the value of the ETF’s securities], the APs buy the underlying assets in the market and convert them into ETF shares,” JPMorgan analysts wrote in a note on the topic. “On the other hand, if the ETF price trades at a discount relative to the NAV, the APs buy ETF shares in the market and redeem them for the underlying basket."

Authorised participants are essential to building the funds since they create and redeem the ETF shares, usually in exchange for baskets of the underlying securities, from the ETF sponsor.

APs typically sign on to support ETFs because they believe they can profit by “arbitraging” small differences between the price of the fund’s shares and the underlying securities being tracked.

 

authorised participant in the news

In July 2013 it was reported that the plan for a Bitcoin ETF was struggling to find support because it would be too difficult for “authorised participants” and “market-makers” – the banks and trading firms that typically sustain such funds – to profit from discrepancies between the underlying asset and the ETF.

In June 2013 it was reported that Citigroup had temporarily suspended redemption orders on ETFs. The FT reported Citi was playing two roles. It was making markets, matching buyers and sellers of ETFs as well as facilitating trading by buying and selling for clients even if there is no matching order on the other side. However, as an “authorised participant (AP),” Citi was also creating and redeeming ETF shares using the actual underlying assets, such as stocks and bonds, working with ETF managers.

FT Articles & Analysis

No articles are associated with this term