Canadian Securities Course (CSC) Practice Exam · Question
Which of the following statements most accurately describes the creation mechanism for an Exchange-Traded Fund (ETF)?
New ETF units are created through a process where Authorized Participants (APs) deliver a portfolio of underlying securities (or cash equivalent) to the ETF man
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Question: Which of the following statements most accurately describes the creation mechanism for an Exchange-Traded Fund (ETF)?
Answer options:
- New ETF units are created by the ETF manager directly selling units to retail investors. ✅ Authorized Participants (APs) deliver a basket of securities and/or cash to the ETF manager in exchange for new ETF units.
- The ETF issuer buys back units from the secondary market to increase the supply of ETF units.
- Fund dealers place orders for new units directly with the custodian of the ETF.
Correct answer: Authorized Participants (APs) deliver a basket of securities and/or cash to the ETF manager in exchange for new ETF units.
Explanation: New ETF units are created through a process where Authorized Participants (APs) deliver a portfolio of underlying securities (or cash equivalent) to the ETF manager in exchange for Creation Units, maintaining alignment between the ETF's market price and NAV.
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