How are ETFs created and redeemed?
What basically happens is that a market maker or “authorized participant” essentially loans an entire portfolio of shares to the fund manager. The stocks are then placed in a trust and shares of the ETF are created, generally in a creation unit of 50,000 shares. ETF shares are sold and resold freely among investors on the open market. If he purchases a sufficient amount of shares, an investor can exchange one full creation unit of ETF shares for the underlying shares of stock. The ETF creation unit is then destroyed and the underlying stocks are delivered out of the trust. What ETFs are available on the market? Including the Merrill Lynch HOLDRS, which are set baskets of stocks that don’t change like a regular ETF, there were 93 U.S.-based ETFs on the market as of October 20, 2000, with many more due to hit the market in coming months. For a complete, regularly updated listing of all these ETFs, as well as complete factual information and data on each please click here.
