What it is
An authorized participant (AP) is a large institutional investor, typically a market maker or specialist, with an agreement with an ETF issuer to perform creation and redemption activities. APs are the only entities that can directly interact with an ETF fund to create new shares or redeem existing ones. They play a critical role in maintaining the ETF's liquidity and ensuring its market price remains closely aligned with its net asset value (NAV) through arbitrage opportunities.
APs are crucial for the efficient functioning of the ETF market. When an ETF's market price deviates from its NAV, APs step in. If the market price is higher than NAV (a premium), an AP creates new shares by delivering the underlying assets to the fund and then sells those new shares on the open market for a profit, increasing supply and pushing the market price down. If the market price is lower than NAV (a discount), an AP buys shares on the open market, redeems them with the fund for the underlying assets, and sells those assets, pushing the market price up.
Why it matters
APs are essential for an ETF's liquidity and accurate pricing. Their actions ensure the ETF's market price tracks its underlying assets, protecting investors from large premiums or discounts.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice