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Due to various reasons, an ETF, even an index ETF might trade at a value lower that the value of its underlying securities.

In such a situation, can the company managing the ETF actually buy from the market and convert the ETF units back to raw shares and cash them out?

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Yes. Depending on which way they are going this is known as a redemption or a creation. In fact, it's not just the ETF company than can do this. There are other entities known as "authorized participants" who can do this at will. This is the reason that the ETF tracks the underlying basket. When it deviates, that creates an arbitrage opportunity for the authorized participants, which they will take once it reaches a level to cover their transactions costs.

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