Create and Redeem ETFs

Create and Redeem ETFs

IB LLC cleared client can create and redeem ETFs through Interactive Brokers.
Simply phone in your request and IB will facilitate the ETF creation/redemption process with ETF issuers. ETF creation and redemption offers large professional clients the following benefits:

  • Create ETFs that are hard to borrow and lend them out or cover your short positions;
  • Create ETFs containing 50,000 or 100,000 shares and make them available in smaller pieces to your clients who are looking to transact ETFs of a smaller size.


Eligibility

All IB LLC institutional clients who clear trades on our platform are eligible to request ETF creation and redemption.



Mechanics of ETF Creation and Redemption

The process of creating and redeeming ETFs at Interactive Brokers is simple and straightforward. The unit of ETF creation/redemption is set by each respective ETF issuer, with each unit containing anywhere from 25,000 to 100,000 shares of an ETF (see chart below). Creations and redemptions settle on a T+3 cycle basis.


Creation Process:
  1. On trade date, an IB client requests by telephone that an X number of units of an ETF be created.
  2. On trade date, IB determines if the client's IB account will remain credit-worthy with the addition of the requested ETF.
  3. On trade date, once approved, IB initiates the creation/redemption order with the issuer.
  4. On trade date, if the IB client is not already long a sufficient amount per the resulting component delivery obligations, the client may buy the component(s) for delivery. If this is not done, a short position results from the component delivery obligation.
  5. On settlement date (Trade Date + 3), IB delivers the required ETF components.
  6. On settlement date, the ETF issuer electronically delivers the ETF to IB.
  7. On settlement date, IB makes the ETF available to the requesting client's account.

Issuer

Sends
ETF

Sends ETF Component
Shares Electronically

Electronically
Provides ETF

Requests an 
ETF (x units)

IB clients is long components, buys the component(s), or short position is created.

IB Cleared Institutional client



Issuer

ETF Sends
Component Shares

Sends ETF

Electronically Provides
Component Shares

Redemption Request

IB client is long the ETF, buys the ETF, or a short position is created.

IB Cleared Institutional client

The redemption process is the exact opposite of the creation process:
  1. On trade date, an IB client requests by telephone that an ETF of X number of units be redeemed.
  2. On trade date, IB determines if the client's IB account will remain credit-worthy with the redemption of the requested ETF.
  3. On trade date, once approved, IB initiates the creation/redemption order with the issuer.
  4. On trade date, if the IB client is not already long a sufficient amount per the resulting ETF delivery obligation, the client may buy the ETF for delivery. If this is not done, a short position results from the ETF delivery obligation.
  5. On settlement date, IB electronically sends the ETF to the issuer.
  6. On settlement date, the issuer electonically sends the requested ETF components (the units of shares of stock) back to IB.
  7. On settlement date, IB adds the redeemed component shares to the requesting client's account.

How to Create and Redeem ETFs at IB

To create an ETF, you can do one of the following:
  • Buy the underlying stock components of the ETF and contact IB to create the ETF from these components;
  • Go short on all or some of the underlying components of the ETF if there is a sufficient amount of cash in your account to support the resulting margin requirement, and IB will borrow the components for delivery.
To redeem an ETF, you can do one of the following:
  • Buy the ETF and contact IB to redeem the ETF and receive the components;
  • Go short on all or some of the ETF and IB will borrow the ETF for delivery.

In the creation process, IB must deliver the underlying stock components to the ETF issuer. If the client account is currently holding the components, then IB will deliver them to the issuer. If the client account does not currently hold the components, then IB will borrow them on the client's behalf. The redemption process works in reverse.

To initiate the process of ETF creation/redemption, call IB Client Service and navigate to the Phone Orders menu option. See our Client Service page for detailed phone instructions. You will be connected to our Trade Desk, which will take your request and begin the process. Requests must be submitted to IB by 3:30 PM EST to accommodate the ETF issuer deadline of 4:00 PM EST (or earlier in the event of abbreviated exchange hours).

IB currently offers 17 ETFs held by four issuers. If the ETF you want to create is not one of those 17, we will determine whether to request the creation from one of our issuers on a case by case basis. Contact your IB Sales Representative for more information on creating ETFs that are not included in the list of 17 ETFs below.

Note: Once you approve the ETF creation or redemption on the phone, the transaction is irrevocable and you will be unable to cancel your request.

Existing ETFs

IB currently offers the following ETFs:
Symbol Product Name Shares/Unit Issuer's Fee
DIA SPDR Dow Jones Industrial Aver 50,000 USD 1,000
MDY SPDR S&P Midcap 400 ETF Trust 25,000 USD 3,000
QQQ Powershares QQQ Nasdaq 100 50,000 USD 1,000
SPY SPDR S&P 500 ETF Trust 50,000 USD 3,000
VTI Vanguard Total Stock Market ETF 100,000 USD 500
VUG Vanguard Growth ETF 100,000 USD 500
XLB Materials Select Sector SPDR 50,000 USD 500
XLE Energy Select Sector SPDR XLE 50,000 USD 500
XLF Financial Select Sector SPDR 50,000 USD 500
XLI Industrial Select Sect SPDR 50,000 USD 500
XLK Technology Select Sect SPDR 50,000 USD 500
XLP Consumer Staples SPDR 50,000 USD 500
XLU Utilities Select Sector SPDR 50,000 USD 500
XLV Health Care Select Sector 50,000 USD 500
XLY Consumer Discretionary Selt 50,000 USD 500

Costs

The following costs are associated with the ETF creation/redemption process:
  • The client is responsible for paying the fees charged by the issuer. IB passes these fees, referenced in the table above, onto the client.
  • IB charges a flat commission of USD 1,000 for each creation/redemption.