ETFs

COUNTERPARTIES

NYSE

XFT

AP

REDEMPTION

1 AP buys ETF shares from market 2 AP delivers ETF shares to BlackRock 3 AP receives ETF underlying securities 4 AP sells ETF underlying securities

CREATION

1 AP buys creation basket of ETF underlying securities 2 AP delivers creation basket of securities to ETF 3 AP receives new ETF shares 4 AP sells shares 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 2 Deliver share to XFT 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

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