Tim Buckley: Greg, a lot has been written about ETFs in the current market environment. They're making up the preponderance of trading out there. They're providing a ton of liquidity. Now, 90% of the trading that goes on with ETFs occurs in the secondary market. Just two investors are finding each other in the market and they're setting the price. In the 10% of occasions where there's an AP (authorized participant) involved, why don't you describe that process? Because as a result, things like discounts come into play, and I think it would be helpful for our clients to understand that a little bit better.
Greg Davis: So what happens in a redemption scenario is an AP would be delivering ETF shares to Vanguard. Vanguard would in essence be delivering the underlying bonds of that ETF back to the AP.
Tim: And so there the AP will get a basket of bonds.
Greg: That's correct.
Tim: They are not getting cash, they’re getting a basket of bonds that they're going to have to sell. In a volatile environment, they're really not quite sure what they are going to be able to sell.
Greg: And there is greater uncertainty around the pricing of those bonds. And so they're going to charge people, basically, some insurance for the cost for any uncertainty around the price that they're going to receive in the marketplace when they have to go through and liquidate all those individual line items.
Tim: So when an investor sees a discount on an ETF, they really should say that, hey, that's the price of liquidity. If I want out now that's what I'm going to have to pay. Greg: So that's something that absolutely have to build in. But they should also think if they don't need liquidity at that point in time, they're better off waiting. Right, they’re better off waiting. But if you need that liquidity, that’s the price you have to pay.
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