TITLE: European Securities and Markets Authority Issues Guidance on Liquidity Management Tools for UCITS and Open Alternative Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidance on liquidity management tools for undertakings for collective investment in transferable securities (UCITS) and open alternative investment funds (AIFs). The guidance implements requirements established under Directive (EU) 2024/927, which amended the UCITS Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU).
The guidance establishes principles for fund managers to select, calibrate, and implement liquidity management tools to effectively manage liquidity risk and mitigate financial stability risks. Fund managers must evaluate the suitability of available tools—including redemption gates, extended notice periods, redemption fees, flexible pricing, dual pricing, dilution levies, in-kind redemptions, and side pockets—based on relevant factors including fund structure, investment strategy, underlying asset liquidity, investor profile, stress test results, and market conditions.
ESMA emphasises that fund managers bear primary responsibility for liquidity management and must ensure selected tools are appropriate for both normal and stressed market conditions. Managers must select at least two suitable tools from the prescribed list, though additional tools may be adopted. The guidance specifies that quantitative tools (such as redemption gates or extended notice periods) and dilution protection tools (such as redemption fees or pricing adjustments) should be considered in combination where appropriate. Side pockets may only be implemented in exceptional circumstances, such as significant valuation uncertainty or illiquidity affecting specific portfolio holdings.
Competent authorities must report to ESMA within two months of publication whether they comply with or intend to comply with the guidance, providing justification for any non-compliance. The guidance applies from the technical regulatory standards' implementation date, with existing funds subject to a 12-month transition period.