An Authorized participant, or AP, is a financial institution contractually entitled to create and redeem large groups of shares directly with a particular exchange-traded product. ETF means exchange-traded fund; ETP is the broader category of exchange-traded products. An ordinary investor usually buys existing shares through a broker. An AP can change their number through creation, which issues new shares, or redemption, which returns and cancels shares. For a bitcoin product, this does not mean creating new bitcoins.
Imagine Jana buying shares in IBIT, the iShares bitcoin investment trust, through her broker. An ordinary brokerage account lets her trade on the exchange; it does not let her order new shares directly from the trust. That second activity requires AP eligibility. The IBIT prospectus dated July 31, 2025 requires a registered broker-dealer, a valid AP agreement and direct or indirect participation in DTC. A broker-dealer is a securities firm; DTC is the US company that provides securities recordkeeping and settlement services. Size alone, or owning many shares, is not enough. These conditions belong to the particular product. [1]
When Jana buys, she sees a price at which someone is willing to sell. A market maker regularly quotes both buying and selling prices, helping investors find someone to trade with. The AP has a different role: it can arrange creations and redemptions with the issuer, the entity issuing the shares. One firm can do both jobs. Quoting prices alone does not make it an AP, and the AP need not be the firm selling shares to Jana. The distinction is between trading an existing share and changing the total number of shares. [2]
An AP does not order each of Jana’s shares separately. The cited IBIT prospectus uses a Basket of 40,000 shares, with creations and redemptions in those units or multiples of them. NAV is the net asset value per share after allowing for liabilities; it is not automatically the price of a current exchange trade. In our example, NAV is USD 50. One basket therefore corresponds to 40,000 × 50 = USD 2,000,000 before fees and other adjustments. USD 50 is an educational assumption, not a live quote. Basket sizes also vary between products. [1]
For a cash creation, the AP provides money and the product arranges the purchase of underlying bitcoin through its specified process. For an in-kind creation, the underlying asset itself is delivered instead: here, bitcoin. Redemption reverses that direction. On July 29, 2025, the US Securities and Exchange Commission, SEC, permitted this in-kind route for crypto ETPs through APs. The cited IBIT prospectus allows both bitcoin and cash. Earlier cash-only restrictions are therefore not a permanent rule. The product’s particular conditions still matter, and Jana has not gained a right to exchange an individual share for BTC. [3] [1]
If shares trade above the value of the assets behind them, creating new shares and selling them may be worthwhile. With the opposite price difference, buying shares and redeeming them with the product may make sense. Trading to exploit such a difference is called arbitrage. The difference alone is not profit. Suppose a share trades at USD 50.20 while comparable underlying value is USD 50. Across 40,000 shares, the gross difference is USD 8,000. If financing, trading, hedging against price changes and settlement cost USD 9,000 in total, the outcome is USD −1,000. The AP’s incentive can narrow a gap; it does not guarantee that the exchange price always equals NAV. [4]
Suppose Jana sells 1,000 existing shares to another investor. Ownership changes, but shares outstanding do not change. This trade alone does not mean the trust must buy more BTC. Trading between investors is called the secondary market. The primary market is where APs arrange creations and redemptions with the product. Exchange trading volume therefore needs to be distinguished from inflows and outflows through creation and redemption. The same shares can change hands repeatedly in a day without fresh assets entering the product each time. [4]
A firm can have an AP agreement yet be creating or redeeming no shares at the moment. BlackRock illustrates this using Australian ETFs: its figures as of July 2025 distinguish contracted APs from active APs that transacted with the fund this way during the preceding 12 months. This is not an IBIT list or a measure of its participants’ capacity today. The cited IBIT prospectus also places no obligation on APs to create or redeem baskets. Assessing a product therefore involves looking beyond the number of names to actual activity and participants’ ability to trade under difficult conditions. [5] [1]
Jana normally enters and exits the product by buying or selling shares through a broker. She does not withdraw individual bitcoins from the trust to her own wallet. For IBIT, even assembling a complete basket does not replace AP eligibility. Before relying on creation or redemption, understand the contract, fees, order deadlines and settlement arrangements. The presence of APs helps explain how the product works. It is not share insurance, a promise of an attractive price or a guarantee that a trading counterparty will always be available. A share in a product and bitcoin in self-custody remain different things. [1]
For the clearest picture, read this entry together with Spot Bitcoin ETP, ETF creation and redemption, Net asset value, Counterparty risk. The reverse links also lead from Spot Bitcoin ETP, ETF creation and redemption, In-kind creation and redemption, Cash creation model.