Authorized participant

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Authorized Participant

An institutional investor that takes part in the creation of an exchange-traded fund (ETF). An exchange-traded fund is an investment company that tracks all the stocks on a particular exchange. When an ETF is created, an authorized participant buys the shares that are to underlie it and gives them to the fund's sponsor in exchange for units (or shares) in the new ETF. The authorized participant then sells these units to investors. Authorized participants are handpicked by the sponsor of the ETF.

Authorized participant.

An authorized participant is an institutional investor who takes part in the creation of exchange traded fund (ETF) shares.

The ETF sponsor selects authorized participants to assemble creation units, which are baskets of securities in the index that underlies the ETF. Each creation unit corresponds to a fixed number of shares in the ETF.

The authorized participant transfers the creation unit to the ETF sponsor in exchange for shares in the ETF, which can then be sold to other investors. Authorized participants may also redeem ETF shares by trading them back to the ETF sponsor for corresponding baskets of securities.

Since ETFs exchange shares only for corresponding baskets of securities and don't buy back shares investors wish to sell, they don't have to keep cash on hand or liquidate securities to meet redemption demands. As a result, ETFs are able to track the underlying index more closely and achieve tax efficiency.

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Part of this rule includes a new form (N-CEN) that will require ETFs to provide details on their exchange listing, listing of authorized participants and activity, information about creation units, and transaction fees.
Under normal market conditions Authorized Participants, typically large financial institutions, will act as arbitragers when an ETF's price diverges from its net asset value.
By digitizing this process using blockchain and IoT, the relevant information is captured directly from the sensors placed on the trucks, and entered onto the blockchain, creating a single, shared repository that all authorized participants can access and which can only be altered with consensus from all parties.
Bloomberg's service allows authorized participants to submit orders directly from BSKT to State Street and generates in-kind settlement instructions based on transaction messages received from Bloomberg.
Our recent introduction of a one-stop process for authorized participants to automate the creation and redemption of exchange traded funds (ETFs) demonstrates the way we implement technology to help our clients succeed and strengthen our position as the industry's service quality leader.
The growing number of investors in the first-ever, and so far the only, exchange-traded fund in the country is a reflection of the investing public's demand for new and exciting financial products that suit their needs," said Gonzalo Ordonez, president of First Metro Securities Brokerage Corporation, the market maker and one of the authorized participants of the First Metro ETF.
The end result, the commission feared, would be that authorized participants (APs) would have access to the fund at NAV, whereas retail investors might be forced to pay a different, market-determined price.
However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.
Less frequently cited were model portfolio providers (80 percent), hedge funds (36 percent), authorized participants (33 percent) and endowments and foundations (33 percent).
We have enhanced our ETF following consultations with a number of international authorized participants and in response to a strong demand for physical replication, said Saleem Khokhar, head of equities at National Bank of Abu Dhabi's asset management group.
The SECP circular has stipulates the regulatory requirements for the authorization of ETFs, including investment restrictions, issuance and redemption of creation units, pricing and dealing, additional disclosure requirements, role of the authorized participants, and fees and expenses.
The regulations broadly cover the listing procedure for ETFs, trading and clearing and settlement of ETF units, disclosure requirements for asset management companies, obligations of authorized participants and fee structure.

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