What are the basics on Exchange Traded Fund operations?
According to SEC website: ETFs do not sell individual shares
directly to investors and only issue their shares in large blocks
(blocks of 50,000 shares, for example) that are known as "Creation
Units." Investors generally do not purchase Creation Units with
cash. Instead, they buy Creation Units with a basket of securities
that generally mirrors the ETF's portfolio. Those who purchase
Creation Units are frequently institutions. After purchasing a
Creation Unit, an investor often splits it up and sells the
individual shares on a secondary market. This permits other
investors to purchase individual shares (instead of Creation
Units). Investors who want to sell their ETF shares have two
options: (1) they can sell individual shares to other investors on
the secondary market, or (2) they can sell the Creation Units back
to the ETF. In addition, ETFs generally redeem Creation Units by
giving investors the securities that comprise the portfolio instead
of cash. So, for example, an ETF invested in the stocks contained
in the Dow Jones Industrial Average (DJIA) would give a redeeming
shareholder the actual securities that constitute the DJIA instead
of cash.