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ETF sponsors are financial firms that create and manage exchange traded funds. Now there are a number of ETF sponsors offering different types of ETFs that track different products and markets; examples include iShares, PowerShares, State Street, etc.

ETF sponsors create ETFs by creating an underlying index which is passively managed. This underlying index can be of stocks, currencies, derivatives, bonds, commodities, etc. Institutional investors help them in creating the initial underlying index by delivering them the stocks or derivatives needed for that. In exchange they receive creation units from ETF sponsors. The institutional investors can then market the shares of the creation units they are holding to retail investors in open markets or centralized exchanges.

Creation units are ETF shares which are considered as units of ETFs. Creation units can vary with the ETF provider and with ETF; usually a creation unit can contain 25,000 to 600,000 ETF shares; and units containing 100,000 shares are most common. It is the creation units that give liquidity as they are the small units of an ETF which is available for intraday trading. ETF sponsors also make necessary changes to the ETF portfolio with time, to best mimic the tracking index. They exchange old securities with the creation unit holders to get new securities.

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