Sunday , April 11 2021
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Why ETF baskets are worth paying attention to

Summary:
The FT’s Steve Johnson had a good write up on Wednesday of a new BIS paper that takes a closer look at the arbitrage mechanics behind bond ETFs. The paper also delves deeper into the potential role played by authorised participants (APs) in supporting liquidity to ETFs. APs are liquidity-providing intermediary traders -- often big broker-dealer or market-making HFT names -- who are exclusively able to redeem and create ETF baskets thanks to the contracts they sign with fund sponsors. One might think such baskets faithfully represent a fund’s underlying holdings. But the big insight in the BIS paper is, actually, that they don’t. That shouldn’t come as a surprise to FT Alphaville readers. We’ve long noted the composition of baskets can be tweaked to suit daily trading

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The FT’s Steve Johnson had a good write up on Wednesday of a new

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FT Alphaville is a free daily news and commentary service giving finance professionals the information they need, when they need it. In a world where market professionals are inundated with information there is a pressing need to edit and filter, and hopefully sow a few ideas along the way. That’s where the FT Alphaville team comes in.

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