TITLE: European Securities and Markets Authority Issues Guidelines on Liquidity Management Tools for Collective Investment Undertakings and Alternative Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published general guidelines on the selection and calibration of liquidity management tools for undertakings for collective investment in transferable securities (UCITS) and open-ended alternative investment funds (AIFs). These guidelines implement mandates established under European Parliament and Council Directive (EU) 2024/927, which amended the UCITS Directive (2009/65/ES) and the Alternative Investment Fund Managers Directive (2011/61/EU).
The guidelines establish principles for fund managers and competent authorities regarding the selection, activation, and calibration of liquidity management tools to effectively manage liquidity risk and mitigate financial stability risks. Fund managers retain primary responsibility for liquidity risk management and must select appropriate tools from two categories: quantitative criteria-based tools (redemption gates, notice period extensions, and in-kind redemptions) and anti-dilution tools (redemption fees, swing pricing, dual pricing, and anti-dilution levies). ESMA requires fund managers to select at least two suitable tools, considering factors including fund legal structure, investment strategy, trading conditions, liquidity profile, stress test results, investor base characteristics, and operational constraints.
The guidelines emphasise that fund managers should consider selecting one tool for normal market conditions and another for stressed conditions. Suspension of subscriptions, redemptions, and redemptions should be activated only in extraordinary circumstances. Fund managers must calibrate anti-dilution tools to reflect estimated liquidity costs and regularly review calibrations to ensure effectiveness.
Competent authorities must notify ESMA within two months of publication whether they comply with these guidelines or provide reasons for non-compliance. The guidelines apply from the effective date of the implementing regulatory technical standards, with existing funds having a 12-month transition period.