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How ETF shares are created

Creation units, authorized participants, in-kind baskets, and the daily holdings list that shows what an ETF owns, from the SEC's ETF bulletin and Rule 6c-11.

The short answer

Most people buy and sell ETF shares on an exchange, at a market price, the same way they trade a stock. The fund itself deals only with authorized participants, usually large broker-dealers, and only in large blocks called creation units. To create shares, an authorized participant delivers a designated basket of securities and cash to the fund and receives ETF shares; redemption is the reverse. That primary-market process, plus daily holdings disclosure for many ETFs, is how the fund's portfolio and the exchange price stay connected. A companion page, index funds vs. ETFs, covers how that structure differs from a mutual fund.

Creation units and authorized participants

The SEC's investor bulletin on ETFs states that only authorized participants may purchase and redeem shares directly from the ETF, and that they can do so only in large aggregations or blocks (the bulletin's example is 50,000 ETF shares) commonly called creation units. To buy shares from the fund, an authorized participant assembles and deposits a designated basket of securities and cash and receives ETF shares in exchange, which it can then sell in the secondary market. Redemption runs the other way: the authorized participant delivers ETF shares and receives the basket. The bulletin notes that ETF shares generally are redeemable "in-kind," meaning the fund may deliver portfolio securities rather than selling them to raise cash.

17 CFR 270.6c-11, the SEC's exchange-traded fund rule, puts those terms into the rulebook. An authorized participant is a member or participant of a registered clearing agency with a written agreement that lets it place creation and redemption orders. A creation unit is a specified number of ETF shares issued to, or redeemed from, an authorized participant in exchange for a basket and any cash balancing amount. The rule's definition of an ETF also requires that the shares be listed on a national securities exchange and traded at market-determined prices.

What an ETF holds

The same bulletin says many ETFs will disclose their holdings to the public every day, on top of the quarterly disclosure required for mutual funds. That daily list is the usual place to see what the fund actually owns, in what weights, on that day. It is also an input to the creation basket and to the intraday values that market participants compare with the exchange price. The holdings can change as the index (if there is one) changes, as the manager adjusts a sample, or as the fund handles cash. The prospectus and the daily holdings file, not the fund's name, are the sources for what is inside.

This page is about the share-creation machinery and the holdings disclosure. For the difference between an index strategy and an ETF share structure, and between an ETF and a mutual fund, see index funds vs. ETFs.

Retail investors trade ETF shares on an exchange; they do not buy creation units from the fund.
Authorized participants create and redeem large blocks, often in kind, which keeps the share count and the portfolio linked.
Many ETFs publish their holdings every day; that list is the direct answer to what the fund holds.

Common questions

Who can create or redeem ETF shares with the fund?

Only authorized participants, typically large broker-dealers with an agreement with the fund. Everyone else buys and sells ETF shares on the exchange.

What is a creation unit?

A large block of ETF shares, defined in Rule 6c-11 as a specified number of shares issued or redeemed for a basket of securities and any cash balancing amount. The SEC bulletin's example is a block of 50,000 shares.

What does in-kind mean?

The authorized participant delivers, or receives, a basket of portfolio securities rather than an all-cash amount. The SEC bulletin says ETF shares generally are redeemable in-kind.

How can someone see what an ETF holds?

Many ETFs disclose their holdings every day, which the SEC bulletin contrasts with the quarterly portfolio disclosure required for mutual funds. The fund's prospectus and fact sheet describe the objective; the holdings list shows the positions.

Is this the same as an index fund?

Not necessarily. Creation and redemption are features of the ETF structure. An ETF may track an index or be actively managed. The index-funds-vs-ETFs page separates those two ideas.

Disclosures

Editor holdings: The editor holds no position in any company named on this page. As of Nov 11, 2026.
Compensation: Nobody paid for this page. No affiliate links on this page.
Sources: Each company's own SEC filings, linked next to each number.
Last updated: Nov 10, 2026

General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.

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