ETF Creation and Redemption Process notes the process:
While ETF trading occurs on an exchange like stocks, the process by
which their shares are created is significantly different. Unless a
company decides to issue more shares, the supply of shares of an
individual stock trading in the marketplace is finite. When demand
increases for shares of an ETF, however, Authorized Participants (APs)
have the ability to create additional shares on demand.
Through an "in kind" transfer mechanism, APs create ETF units in the
primary market by delivering a basket of securities to the fund equal
to the current holdings of the ETF. In return, they receive a large
block of ETF shares (typically 50,000), which are then available for
trading in the secondary market. This ETF creation and redemption
process helps keep ETF supply and demand in continual balance and
provides a "hidden" layer of liquidity not evident by looking at
trading volumes alone.
This process also works in reverse. If an investor wants to sell a
large block of shares of an ETF, even if there seems to be limited
liquidity in the secondary market, APs can readily redeem a block of
ETF shares by gathering enough shares of the ETF to form a creation
unit and then exchanging the creation unit for the underlying
Thus, the in-kind swap to the underlying securities is only done by APs so the outflow would be these individuals taking a large block of the ETF and swapping it for the underlying securities. The APs would be taking advantage of the difference between what the ETF's trading value and the value of the underlying securities.