Issuing & Listing Mechanism
ETF Issuing Process
- SFB：Securities and Futures Bureau
- SITCA：Securities Investment Trust and Consulting Association of the R.O.C.
ETF Creation & Redemption Mechanism
Because ETFs are open-end funds, investors may apply for a creation/redemption based on the fund’s net asset value (NAV) through participating dealers on the primary market after listing. The creation/redemption of ETF is divided into “In-kind Creation/Redemption” and “Cash Creation/Redemption.”
- In-kind creation/redemption:
- ETF issuer publishes the portfolio composition file (PCF) on a daily basis to serve as an “In-kind Creation/Redemption Unit (basket)” and the creation/redemption can only be effected based on a basket or its integral multiples.
- “In-kind Creation” of ETF refers to the participating dealer for its own account or on behalf of its customer delivering a basket or its integral multiples of index constituent securities to the SITE in exchange for ETF beneficial certificates while “In-kind Redemption” is to deliver ETF beneficial certificates in exchange for a basket or its integral multiples of index constituent securities.
- Cash creation/redemption: Refers to the participating dealer for its own account or on behalf of its customer delivering cash/ETF beneficial certificates to the SITE/FTE in exchange for ETF beneficial certificates/cash. Currently ETFs tracking foreign component securities indices or foreign commodity futures indices, or leveraged/inverse ETFs all adopt cash creation/redemption.
The ETF creation/redemption mechanism allows the market price and net asset value of ETF to converge within a specific range, thereby enabling the market price on the secondary market to align closely with its actual value.