TITLE: European Securities and Markets Authority Issues Guidance on Liquidity Management Tools for Open-Ended Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidance on the selection and calibration of liquidity management tools (LMT) for undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) of open-ended type.
The guidance implements mandates under Directive (EU) 2024/927, which amended the UCITS Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). ESMA's guidance establishes consistent supervisory practices and ensures uniform application of European Union law regarding the selection, activation and calibration of LMT by fund managers and competent authorities.
The guidance covers two categories of LMT: quantitative data-based tools (redemption gates, notice period extensions, and suspensions) and anti-dilution tools (redemption fees, net asset value adjustment, dual pricing, and adjustable subscription/redemption fees). Fund managers must select at least two appropriate LMT and may select additional tools to ensure overall fund resilience. The guidance recommends considering at least one quantitative tool and one anti-dilution tool, tailored to investment strategy, redemption policy and fund liquidity profile.
Key principles include: fund managers bear primary responsibility for liquidity risk management; LMT selection must account for fund structure, investment strategy, transaction conditions, underlying asset liquidity, stress test results, investor base characteristics and operational barriers. Managers must demonstrate that activation and calibration of selected LMT serve all investors' best interests and are appropriate given market conditions and fund characteristics.
Competent authorities must notify ESMA within two months of publication whether they comply with the guidance, providing reasons for non-compliance. The guidance applies from the effective date of related regulatory technical standards, with existing funds having a twelve-month transition period.
REFERENCES:
ESMA34-671404336-1364, 12 March 2026: https://www.esma.europa.eu/