On-floor trading is based on real-time trading price, similar to stock trading. LOF fund shares traded on the floor are managed on the floor.
OTC subscription or redemption, like ordinary open-end funds, is based on the net value of the fund. OTC fund shares are managed at the counter.
Theoretically, when the floor transaction price is higher than the fund's net value (premium), the off-market share can be transferred to the market through re-custody and sold at the floor transaction price to achieve arbitrage. On the other hand, when the on-site transaction price is lower than the net value of the fund (discount), the on-site buying share of the real-time transaction price can be transferred to the off-site through re-custody, and the arbitrage can be realized according to the net value of the fund.
But in fact, because there are not many institutions that can handle the transfer custody, the transfer custody procedure is inconvenient, the arbitrage opportunity is fleeting and arbitrage is unrealistic.