Market-makers are the only market participants authorised to create units with ETF fund managers, but they have to get the ETF shares from the fund manager. The way they do this is through a creation/redemption process that involves the market-maker exchanging the equivalent ETF securities, rather than cash, to the fund manager in exchange for ETF shares.
Key learning objectives:
Understand the creation/redemption process
Understand the benefits and disadvantages of the creation/redemption process