Create and Redeem ETFs

Create and Redeem ETFs


IB LLC cleared clients 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 ticket 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 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 (refer to Create Equity and Fixed Income ETFs for details), 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 ticket 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.
  8. IB customers may not execute an ETF redemption if such ETF redemption results in a short position for that ETF.

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, create a ticket through Account Management call IB Client Service and navigate to the Phone Orders menu option and submit your request in writing. Requests for equity ETFs 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). Requests for fixed income ETFs will vary. Customers should refer to the Create Equity and Fixed Income ETFs details for information.

IB currently offers 41 ETFs held by four issuers. If the ETF you want to create is not one of those 41, 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 41 ETFs below.

IB customers may not execute an ETF redemption if such ETF redemption results in a short position for that ETF.

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

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 500 for each creation/redemption.

Existing Equity ETFs

Full Details for Create Equity and Fixed Income ETFs

IB currently offers the following Equity ETFs:
Symbol Product Name Shares per Creation Unit Fixed Creation Fee
IBB iShares Nasdaq Biotechnology 50,000 USD 300
IWM iShares Russell 2000 50,000 USD 3,000
XLY Consumer Discretionary Select Sector 50,000 USD 500
XLP Consumer Staples Select Sector 50,000 USD 500
XLE Energy Select Sector 50,000 USD 500
XLF Financial Select Sector 50,000 USD 500
XLV Health Care Select Sector 50,000 USD 500
XLI Industrial Select Sector 50,000 USD 500
XLB Materials Select Sector 50,000 USD 500
XLK Technology Select Sector 50,000 USD 500
XLU Utilities Select Sector 50,000 USD 500
DIA SPDR Dow Jones Industrial Average 50,000 USD 1,000
SPY SPDR S&P500 50,000 USD 3,000
MDY SPDR S&P MidCap 400 25,000 USD 3,000
VTI Vanguard Total Stock Market 100,000 USD 500
VUG Vanguard Growth 25,000 USD 500
QQQ Powershares QQQ Trust Series 1 50,000 USD 1,000
QMOM Momentumshares US Quantitative Momentum 50,000 USD 250
QVAL ValueShares US Quantitative Value 50,000 USD 250

Existing Fixed Income ETFs

Full Details for Create Equity and Fixed Income ETFs

IB currently offers the following Fixed Income ETFs:
Symbol Product Name Shares per Creation Unit Creation Fee
BOND PIMCO Total Return Active 50,000 USD 0 + .050%1
LDUR PIMCO Low Duration Active 50,000 USD 0 + 0%1
MINT PIMCO Enhanced Short Maturity Active 70,000 USD 0 + 0%1
ILB PIMCO Global Advantage Inflation-Linked Bond Active 100,000 USD 0 + .200%1
DI PIMCO Diversified Income Active 100,000 USD 0 + .100%1
SMMU PIMCO Short Term Municipal Bond Active 50,000 USD 0 + .050%1
MUNI PIMCO Intermediate Municipal Bond Active 50,000 USD 0 + .050%1
STPZ PIMCO 1-5 Year U.S. TIPS Index 50,000 USD 0 + .350%1
TIPZ PIMCO Broad U.S. TIPS Index 50,000 USD 0 + .350%1
LTPZ PIMCO 15+ Year U.S. TIPS Index 50,000 USD 0 + .350%1
TUZ PIMCO 1-3 Year U.S. Treasury Index 50,000 USD 0 + .050%1
ZROZ PIMCO 25+ Year Zero Coupon U.S. Treasury Index 50,000 USD 0 + .350%1
CORP PIMCO Investment Grade Corporate Bond Index 50,000 USD 0 + .350%1
HYS PIMCO 0-5 Year High Yield Corporate Bond Index 50,000 USD 0 + .050%1
BAB PowerShares Build America Bond Portfolio 50,000 USD 500 + .250%1
BKLN PowerShares Senior Loan Portfolio 100,000 USD 500 + .050%1
(1-9 units. 10+ = actuals with max. 2.00%)
DSUM PowerShares Chinese Yuan Dim Sum Bond Portfolio 50,000 USD 500 + .500%1
PICB PowerShares International Corporate Bond Portfolio 50,000 USD 500 + .250%1
PVI PowerShares VRDO Tax Free Weekly Portfolio 50,000 USD 500 + 0%1
PWZ PowerShares California AMT-Free Municipal Bond Portfolio 50,000 USD 500 + .250%1
PZA PowerShares National AMT-Free Municipal Bond Portfolio 50,000 USD 500 + .250%1
PZT PowerShares New York AMT-Free Municipal Bond Portfolio 50,000 USD 500 + .250%1

Notes:

  1. Fixed income ETF redemption and creation may be subject to variable fees which may differ based on the action taken. For a full description of the fees associated with each issue above, please refer to the Full Details for Create Equity and Fixed Income ETFs