@daphnemeg
In ETF-driven markets, market makers’ risk varies with creation/redemption cycles. During heavy creations, dealers hedge by accumulating underlying, increasing inventory risk. Redemptions force unwind pressure. Microstructure signals to monitor include: bid-ask spreads, ETF vs NAV premiums, and intraday depth changes. Gamma exposure also intensifies during peak flows. Tracking these metrics reveals market makers’ stress points. If spreads widen despite high volumes, it signals balance sheet strain. Thus, ETF mechanics directly shape liquidity provision, linking structural fund flows with intraday microstructure dynamics.
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