Authorized Participant
A large broker-dealer permitted to create and redeem fund shares directly with the fund, which keeps the share price near the value of the holdings.
An authorized participant signs an agreement with the product's sponsor allowing it to exchange baskets of assets or cash for blocks of shares. When shares trade above the value of the holdings, the participant creates new shares and sells them; when shares trade below, it buys shares and redeems them. That arbitrage, repeated by competing firms, is the entire reason exchange-traded products usually track their holdings closely. Digital-asset products often name several authorized participants in the prospectus, and the number matters because arbitrage weakens if only one firm is willing or able to act.
In der Praxis
If a product's shares drift above the value of the assets behind them, an authorized participant can deliver a basket, receive shares at that value, and sell them at the higher market price, pushing the two back together.
Das häufige Missverständnis
That authorized participants are obliged to keep the price in line, when no rule requires them to transact and they act only when their own arbitrage is profitable.