TITLE: European Securities and Markets Authority Issues Guidelines on Liquidity Management Instruments for Collective Investment Funds
BODY:
On March 12, 2026, the European Securities and Markets Authority (ESMA) published guidelines on liquidity management instruments (LMTs) for undertakings for collective investment in transferable securities (ICBEs) and open-ended alternative investment funds (AIFs). The guidelines implement mandates established under Directive (EU) 2024/927, which amended the Alternative Investment Fund Managers Directive (AIFM Directive) and the UCITS Directive.
The guidelines establish consistent supervisory practices for the selection, calibration, and activation of liquidity management tools by fund managers. ESMA requires fund managers to select at least two appropriate instruments from specified lists, which include quantity-based instruments (redemption request restrictions, extended notice periods, in-kind redemptions) and anti-dilution tools (redemption fees, swing pricing, dual pricing, anti-dilution levies). Fund managers must assess suitability based on factors including fund structure, investment strategy, investor base, underlying asset liquidity, stress test results, and operational constraints.
The guidelines address specific instruments: suspensions of subscriptions and redemptions are permitted only in exceptional circumstances; redemption request restrictions are recommended for all funds to prevent suspensions; extended notice periods should be considered particularly for funds investing in less liquid assets; anti-dilution instruments must be calibrated to reflect estimated liquidity costs under both normal and stressed market conditions; and side pockets may be activated only in exceptional circumstances involving significant valuation uncertainty or illiquidity.
Competent authorities must notify ESMA within two months of publication whether they comply with the guidelines or provide reasons for non-compliance. The guidelines apply from the effective date of the technical regulatory standards, with a 12-month transition period for existing funds.