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Traditional Finance

NAV-based order process and creation of ETF shares

  • Investor places NAV-based order with AP.
  • AP buys basket in the market.
  • AP transfers basket to ETF for in-kind creation.
  • ETF performs NAV fixing.
  • AP provides cash to ETF for cash creation.
  • ETF performs NAV fixing.
  • ETF issues shares at NAV to AP.
  • AP forwards ETF shares at NAV to Investor.

NAV-based order process and redemption of ETF shares

  • Investor requests redemption from AP.
  • AP receives redemption order.
  • AP transfers ETF shares to ETF.
  • ETF receives shares and processes NAV.
  • ETF transfers basket in-kind to AP.
  • AP sells basket in the market.
  • AP forwards cash proceeds to Investor.
nav-based order process creation ETF nav-based order process redemption ETF
  • Order Initiation: Investor contacts AP to buy ETF shares.
  • Basket Compilation: AP determines required securities.
  • Basket Purchase: AP buys the securities.
  • Transfer to Fund: AP transfers basket to ETF provider.
  • Share Issuance: ETF provider issues new shares to AP.
  • Distribution: AP delivers ETF shares to investor.

ETF Premium to NAV

  • AP buys securities from Exchange.
  • AP presents them as a basket to ETF Provider.
  • AP exchanges basket for ABC ETF share.
  • AP sells ETF share to investors for profit.

ETF Discount to NAV

  • AP buys ETF share from Exchange.
  • AP presents ETF share to ETF Provider.
  • AP exchanges ETF share for basket of underlying stocks.
  • AP sells underlying stocks to investors for profit.
  • Order Initiation: Investor contacts AP to sell ETF shares.
  • ETF Share Transfer: Investor transfers ETF shares to AP.
  • Basket Compilation: AP determines the equivalent basket of securities.
  • Transfer to Fund: AP transfers ETF shares to ETF provider.
  • Basket Distribution: ETF provider transfers basket of securities to AP.
  • Sale of Securities: AP sells the securities in the market or holds them.
  • Premium -> Creation
  • Discount -> Redemption

Premium to NAV

  • Buy underlying assets
  • Compile basket
  • Deliver basket to ETF
  • Recieve new ETF shares from fund provider
  • Sell shares

Discount to NAV

  • Buy ETF shares
  • Redeem
  • Recieve basket of underlying fund assets
  • Sell underlying assets at current market price