Authorized Participant

DEFINITION of 'Authorized Participant'

An entity chosen by an exchange-traded fund's (ETF) sponsor to undertake the responsibility of obtaining the underlying assets needed to create an ETF. Authorized participants are typically large institutional organizations, such as market makers or specialists.

BREAKING DOWN 'Authorized Participant'

The authorized participant plays a critical role in the construction of an ETF's creation unit (large blocks of the ETF's underlying shares of equity or other assets). After acquiring all the underlying stocks that will form the ETF, the authorized participant will often need to transfer the shares to a custodian bank.

RELATED TERMS
  1. ETF Sponsor

    The company or financial institution which creates and administers ...
  2. ETF Of ETFs

    An exchange-traded fund (ETF) that tracks other ETFs rather than ...
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  4. Creation Unit

    A set of shares or securities that makes up one unit of a fund ...
  5. Sponsor

    1. In the context of stocks, an influential investor who creates ...
  6. Inverse ETF

    An exchange-traded fund (ETF) that is constructed by using various ...
Related Articles
  1. Professionals

    Exchange Traded Funds (ETFs)

    CFA Level 1 - Exchange Traded Funds (ETFs). Learn how exchange traded funds look to mimick the overall market's return. Covers the advantages and risks of ETFs, and how they trade.
  2. Mutual Funds & ETFs

    An Inside Look At ETF Construction

    If you're an investor who likes to understand how and why your investment products work, this article is for you!
  3. Mutual Funds & ETFs

    Exchange-Traded Funds: Background

    Compared to mutual funds, ETFs are relatively new. The first U.S. ETFs were created by State Street Global Advisors with the launch of the S&P 500 depositary receipts, also know as SPDRs ...
  4. Mutual Funds & ETFs

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
  5. Top ETFs and What They Track: Introduction to ETFs

    Investopedia explains: An Exchange-Traded Fund (ETF) is an investment fund that tracks an index, specific asset or basket of assets to which it is pegged.
  6. Mutual Funds & ETFs

    4 Trends in the ETF Market to Date in 2016 (SPY)

    Learn about four emerging ETF trends in 2016, including what they signal about broader trends in investing and the financial services industry.
  7. Mutual Funds & ETFs

    Building An All-ETF Portfolio

    Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility.
  8. Investing Basics

    The Advantages of ETFs Compared to Index Funds

    With the ongoing ETF boom, ETFs gain more variety and increased competition in the market leads to further investors' advantages compared to index funds.
  9. Mutual Funds & ETFs

    4 Things to Know Before Choosing an ETF

    ETFs are a low-cost way to get exposure to different markets. But they're not all the same. Investors should research the following key information regarding the ETF before buying it.
  10. Investing

    5 Signs It's Time to Dump Your ETF

    You’ve bought into your favorite ETF, and it's been a great ride. When should you exit? Here are the top signals to exit an ETF position.
RELATED FAQS
  1. How are new exchange traded funds (ETFs) created?

    Read about how exchange-traded funds are proposed to the SEC, created with underlying assets, sold to authorized participants ... Read Answer >>
  2. How can I check to see if an ETF’s price reflects its asset value?

    Learn how an investor can find the net asset value for an exchange-traded fund and why the net asset value and market value ... Read Answer >>
  3. Do ETFs pay capital gains?

    Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>
  4. What strategies are used in a redemption mechanism?

    Find out how the ETF redemption mechanism works and how authorized participants arbitrage ETF shares to bring them in line ... Read Answer >>
  5. Besides stocks, what other asset classes can I invest in through ETFs?

    Discover the extremely far-reaching range of investment asset classes that are available to investors through exchange-traded ... Read Answer >>
  6. How does arbitrage affect the price of exchange traded funds (ETFs)?

    Learn how authorized participants will arbitrage any deviations between the market value and net asset value of an exchange-traded ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center