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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RELATED FAQS
  1. 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 >>
  2. 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 >>
  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?

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