So I was reading about how the APs can turn ETF units into baskets and vice versa. In principle, it's not complicated. In practice though, how is it done? If you have a basket of stocks, how are you going to avoid getting killed in transaction costs? What do you do about illiquid issues? Is there an HFT element to it, ie once the arb opens, it's critical to get there first? (This will be addressed by the next question)Is this a purely mechanical arb, in the sense that everyone does it the same way, or is there some art to it? How often does the opportunity arise in, say OEX?

While I don't claim a thorough understanding of the techniques, it's entirely possible, that the arb is done by large banks, that have most stocks already, so they just exchange it for ETF units, if the moment is appropriate.