Answer: A market maker sells ETF shares and is required to borrow ETF shares to avoid a short position

## Explanation **Option C is correct** because a market maker selling ETF shares and borrowing shares to avoid a short position is not a source of tracking error. This is part of normal market making activities and doesn't affect how closely the ETF tracks its underlying index. **Option A is incorrect** because holding only a subset of index securities (representative sampling) is indeed a source of tracking error, as the ETF may not perfectly replicate the index's performance. **Option B is incorrect** because trading commissions and other transaction costs are sources of tracking error, as they create a drag on performance relative to the index.

Author: LeetQuiz Editorial Team