Seed capital is the initial funding that allows an ETF to launch and become available to investors. The seed capital is used to fund the creation units that underlie the ETF so the shares can then be offered and traded in the open market.
Historically, most seed capital is provided by banks and broker-dealers, but many ETFs have been self-seeded as well. Self-seeded ETFs are generally funded with either new capital or with assets from separate accounts and other investment vehicles offered by the firm.
