alleryStart learning →What is a creation unit?
AA single ETF share priced at the closing NAV
BA large block of ETF shares, typically 50,000 or more
CThe basket of index securities held by the fund
DA discounted share class sold to fund insiders
Answer & Solution
Correct answer: B. A large block of ETF shares, typically 50,000 or more
1. Creation units are large blocks of ETF shares, typically 50,000 shares or more.
2. They are the only parcels in which an Authorized Participant may deal directly with the ETF.
3. They are usually paid for in an in-kind exchange with a basket of securities that mirrors the ETF portfolio.
4. The basket of securities is what is handed over for a creation unit, so the basket and the unit are not the same thing.
5. ETFs offer only one class of shares, so a special insider class does not exist.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Glossary of Key Mutual Fund and ETF Terms_
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