It Starts with the Authorized Participant
An ETF begins with the fund sponsor’s investment idea.
But the official creation process actually begins with an
Authorized participants (AP). Sometimes called specialists
or market makers, APs are broker/dealers who essentially
create, or “make,” the market for an ETF. The AP initiates the
creation of ETFs based on the need to fill an order or to
generate inventory. The AP may also initiate the process
when there is an opportunity for arbitrage. It’s important
to note that APs are the only institutions that may create or
redeem shares of an ETF.
To Create or Redeem?
A Portfolio Composition File is created by the fund manager
or trustee. It’s used to determine which securities and share
quantities are needed to warrant the creation or redemption
of an ETF by the AP on the next trading day.
ETFs are subject to risks similar to those of stocks and may not be suitable for
all investors. Investment returns and principal value will fluctuate so that when
shares are redeemed, they may be worth more or less than original cost.
Securities are not guaranteed by any bank, are not insured by the FDIC or any
other agency, and involve investment risks, including the possible loss of the principal
amount invested.
RydexShares are distributed by Rydex Distributors, Inc., an affiliate of Rydex Investments.
Rydex Investments 9601 Blackwell Road Suite 500 Rockville, MD 20850
800.820.0888 Send us your comments
For more complete information regarding Rydex funds, call 800.820.0888 or click here for a prospectus. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. The fund's prospectus contains this and other information about the fund. Read the prospectus carefully before you invest or send money.
Key Points to Remember
It all begins with the
Authorized Participant— only the Authorized
Participant can create or
redeem shares of an ETF.
When creating an
ETF, common stock is
exchanged for ETF shares.
No cash is exchanged for
ETF shares, making this
an in-kind transaction.
An ETF’s shares are exchanged in-kind for
equal value, so there are
no taxable gains on the
transaction—enhancing
an ETF’s tax efficiency.
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