10 – L2 09 Redeeming Shares V3

If investors hold ETF shares and want their money back, they just sell their shares on the stock exchange. There’s no need for them to interact with ETF sponsor. For reasons we’ll see soon, an AP may decide to redeem ETF shares for the original portfolio of stocks. This is essentially reversing the original ETF share creation process and is called, the redeem process. So, the AP buys ETF shares from investors in the stock market. Then, the AP trades the ETF shares with the ETF sponsor in exchange for the original stocks. Then, the AP sells these stocks on the stock exchange. This is called the redeem process, because the AP redeems the original basket of stocks by trading in the ETF shares. Notice, that the redeem process effectively reduces the number of ETF shares in the open market.

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