> For the complete documentation index, see [llms.txt](https://docs.xft.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.xft.finance/learn/etfs.md).

# ETFs

COUNTERPARTIES

NYSE

XFT

AP

REDEMPTION

1 AP <mark style="color:red;">buys ETF shares</mark> from market\
2 AP <mark style="color:red;">delivers ETF shares</mark> to BlackRock\
3 AP <mark style="color:red;">receives</mark> ETF underlying <mark style="color:red;">securities</mark>\
4 AP <mark style="color:red;">sells</mark> ETF underlying <mark style="color:red;">securities</mark>

CREATION

1 AP <mark style="color:purple;">buys</mark> creation basket of ETF underlying <mark style="color:purple;">securities</mark>\
2 AP <mark style="color:purple;">delivers</mark> creation basket of <mark style="color:purple;">securities</mark> to ETF\
3 AP <mark style="color:purple;">receives</mark> new <mark style="color:purple;">ETF shares</mark>\
4 AP <mark style="color:purple;">sells shares</mark> in market

REDEEM\
AP buys ETF shares → delivers to issuer → receives underlying → sells underlying

CREATE\
AP buys basket → delivers basket → receives ETF shares → sells shares

discount = buy+redeem = buy+swap

DISCOUNT
\
1 Buy NYSE share $9.80, NAV $10
\ <mark style="background-color:yellow;">2 Deliver share to XFT</mark>
\
3 Receive 10 BTCX tokens
\
4 Swap 10 BTCX for 10 USDC
\
5 Redeem 10 USDC

DISCOUNT
\
1 Buy NYSE share $9.80, NAV $10
\
2 Deliver share to XFT
\
3 Receive 10 BTCX tokens
\
4 Swap 10 BTCX for 10 USDC
\
5 Swap 10 USDC for bitcoin

discount = buy+redeem = buy+swap

Creation and redemption

<figure><img src="https://960155864-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FVw4YaRvQtCLcdva1K37V%2Fuploads%2FAhQ4hoLKEuuAHQZ4aimv%2Fimage.png?alt=media&amp;token=bc1fb60c-a7b1-416a-9f7f-169f435d909c" alt=""><figcaption></figcaption></figure>

<figure><img src="https://960155864-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FVw4YaRvQtCLcdva1K37V%2Fuploads%2FokYPKDOjQgTJTfVp0OFv%2Fimage.png?alt=media&amp;token=6b681752-7833-4a94-b4e8-460077e1c714" alt=""><figcaption></figcaption></figure>

<figure><img src="https://960155864-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FVw4YaRvQtCLcdva1K37V%2Fuploads%2F6NtOu4SVD2a6Sb0RsIrI%2Fimage.png?alt=media&amp;token=9bb7657f-ceda-4fa9-928e-a30a391ea708" alt=""><figcaption></figcaption></figure>

RESOURCES

<https://www.blackrock.com/au/insights/ishares/authorised-participants-and-market-makers>

<https://www.schwabassetmanagement.com/content/understanding-etf-creation-and-redemption-mechanism>

<https://www.ssga.com/us/en/intermediary/insights/master-the-mechanics-of-etf-trading>

<https://www.congress.gov/crs_external_products/R/HTML/R45318.web.html>

<https://www.citigroup.com/rcs/citigpa/storage/public/icpublic/Citi-Securities-Services-Understanding-ETFs-Playbook.pdf>

<https://www.kellogg.northwestern.edu/faculty/jagannathan/teaching/practicum/2004/files/Final-Reports/ETF%20Arbitrage%20.pdf>