Definition
Authorised Participant
An authorised participant is a large institutional intermediary contracted with an ETF issuer that has the exclusive right to create and redeem ETF units directly with the fund in large blocks.
In India, APs are typically brokers or institutions appointed by the AMC. They are the only entities that interact with the fund in the primary market, assembling the creation basket of underlying stocks for an in-kind transfer in exchange for new units, or redeeming units for the basket.
By arbitraging any gap between the ETF's market price and its iNAV, APs keep the traded price close to fair value, which is the defining advantage of ETFs over closed-end funds. APs often also act as on-screen market makers, providing the secondary-market liquidity that retail investors rely on.
Related terms
- ETF Creation/RedemptionCreation and redemption is the primary-market mechanism by which authorised participants exchange a basket of underlying securities (or cash) for new ETF units, or hand back units for the basket, keeping the ETF price aligned with its NAV.
- ETF Market MakerAn ETF market maker is a registered participant that continuously posts buy and sell quotes for ETF units on the exchange, providing on-screen liquidity and keeping the traded price close to fair value.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.