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.

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  1. How does arbitrage affect the price of exchange traded funds (ETFs)?

    Arbitrage may be used to bring the market value of an exchange-traded fund (ETF) back into line with the net asset value ... Read Full Answer >>
  2. How are new exchange traded funds (ETFs) created?

    The creation and structure of exchange-traded funds (ETFs) are similar to that of mutual funds. An ETF serves as a portfolio ... Read Full Answer >>
  3. What strategies are used in a redemption mechanism?

    Redemption mechanism strategies are deployed by market makers to ensure the price of an exchange-traded fund, or ETF, does ... Read Full Answer >>
  4. Can you short sell ETFs?

    ETFs (an acronym for exchange-traded funds) are treated like stock on exchanges; as such, they are also allowed to be sold ... Read Full Answer >>
  5. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
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    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>

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