An authorized participant offers an actively managed ETF manager a basket of securities which are eligible to be held by the fund, but are not currently held. The manager thinks the price is attractive. However, the existing holdings are not liquid and the manager does not want to sell them.
Could the manager accept the bonds in-kind to create a new unit or is there a regulation that the basket must overlap with existing holdings? How would this be included in the fund's turnover statistics?
EDIT: I would like to better understand how active ETFs work. It is good for investors, both retail and institutional to understand the mechanics of the products they invest in. I feel this question falls within the allowed category below:
Securities trading and investing, whether long- or short-term, as practiced by retail traders and investors. (Excludes specific security recommendations, stock tips/discussion, forecasts.)