TITLE: European Securities and Markets Authority Issues Guidelines on Liquidity Management Tools for UCITS and Alternative Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidelines on liquidity management tools (LMTs) for undertakings for collective investment in transferable securities (UCITS) and open alternative investment funds (AIFs).
The guidelines establish consistent supervisory practices for the selection, calibration, activation, and deactivation of LMTs by fund managers and competent authorities. ESMA developed these guidelines pursuant to mandates in the UCITS Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU), as amended by Directive (EU) 2024/927. The guidelines address quantitative LMTs—including redemption gates, extensions of notice periods, and suspensions of subscriptions and redemptions—and anti-dilution tools (ADTs) such as redemption fees, swing pricing, dual pricing, and anti-dilution levies. The guidelines also cover side pockets and redemption in kind.
Fund managers retain primary responsibility for liquidity risk management and LMT selection. The guidelines require fund managers to evaluate tool suitability based on fund structure, investment strategy, trading terms, liquidity profile, stress test results, investor characteristics, and operational considerations. Fund managers should select at least two appropriate LMTs and may select additional tools to enhance fund resilience. The guidelines recommend considering both quantitative LMTs and ADTs, potentially designating one tool for normal market conditions and another for stressed conditions.
Competent authorities must notify ESMA within two months of publication whether they comply with or intend to comply with the guidelines, providing reasons for any non-compliance. The guidelines apply from the effective date of the regulatory technical standards referenced in the amended directives, with a 12-month transition period for pre-existing funds.
REFERENCES:
https://www.esma.europa.eu