ETF fund managers will publish a list of "physical purchase and redemption" (also known as "a basket of stock files") according to the net asset value, portfolio and constituent stocks of the underlying index before the market opens every day. According to the contents of the list, investors can deliver the constituent shares to the fund manager of the ETF in order to obtain the "physical subscription base" or an ETF with an integral multiple thereof; The above process will create new ETFs and increase the circulation of ETFs, which is called physical subscription. Redemption in kind is the opposite procedure, which reduces the circulation of ETF, that is, the process in which investors convert the ETF with "subscription in kind" or its integral multiple into the constituent stocks of the subscription in kind.

The physical subscription and redemption of ETF can only be delivered in kind, and only in some cases (such as when some constituent stocks cannot be directly purchased from the secondary market due to suspension of trading and other reasons). ), some constituent stocks can be conditionally allowed to use cash instead.

The counterparties of ETF "physical purchase and redemption" are investors and funds. The schematic diagram is as follows:

Subscription diagram