There is a question on the learning ecosystem that states the Authorized participants do not trade in the secondary market. Is this correct? As I understand they have to trade to help maintain the equality of the NAV and the ETF price in the secondary market.
Pls clarify
The APs trade in the secondary market to purchase the shares in the creation basket and to sell the ETF shares once they get them from the sponsor. The creation/redemption process takes place solely in the primary markets.
This is generally correct; however, they can purchase shares of the creation basket, or purchase shares of the ETF, depending on whether the ETF is trading above or below market price.
Do you have the precises wording of the question.
The creation/eredemption process between the AP and EFT manager is in the primary markets.
But for creation the the AP will have probably purchased in the underlying shares in the secondary market and then sell the new ETF shares in the secondary market.
For the redemption process AP will have probably purchased in the ETF share in the secondary market and then sell the underlying shares in the secondary market.