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Who are the Authorized Participants in an ETF's structure?
AFinancial institutions, typically large broker-dealers
BRetail investors buying small lots of ETF shares
CIndex providers that license the tracked benchmark
DSEC staff who approve each ETF exemptive order
Answer & Solution
Correct answer: A. Financial institutions, typically large broker-dealers
1. An ETF sponsor enters contractual relationships with one or more Authorized Participants.
2. Those Authorized Participants are financial institutions, typically large broker-dealers.
3. Only they buy and redeem shares directly from the ETF, and only in large blocks called creation units.
4. Retail investors reach the same shares in the secondary market, so they are not Authorized Participants.
5. Index licensing and SEC review are separate functions and carry no creation or redemption right.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section How ETFs Work_
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