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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RELATED FAQS
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    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 >>
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    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 >>
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