Authorised Participant (AP)
A large financial institution with a direct agreement to create and redeem ETF shares in bulk directly with the fund issuer.
An Authorised Participant (AP) is a large financial institution — typically a bank or market maker like Jane Street, Goldman Sachs, or Citadel — with a contractual agreement to interact directly with an ETF issuer's primary market. APs can assemble baskets of the underlying securities and exchange them for blocks of newly created ETF shares (creation), or deliver ETF shares to the issuer in exchange for the underlying basket (redemption). This is typically done in 'creation units' of 25,000–100,000 shares.
The AP arbitrage mechanism is what keeps ETF market prices aligned with NAV. When the ETF trades at a premium to NAV, APs buy the cheaper underlying basket, deliver it to create new ETF shares, and sell those shares at the premium. When the ETF trades at a discount, APs buy cheap ETF shares and redeem them for the more valuable underlying basket. This arbitrage is near-instantaneous for large, liquid ETFs, keeping deviations typically below 0.05%.
Tokenised ETFs do not use the AP mechanism. Their issuers participate in the underlying ETF as regular exchange buyers (not APs), and their primary market mint/redeem process takes 3–5 business days. This is why tokenised ETF tokens can trade at larger discounts or premiums to NAV — especially outside exchange hours — compared to the underlying ETF itself.