TITLE: European Securities and Markets Authority Issues Guidance on Liquidity Management Tools for Open-Ended 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 (OICVM) and open-ended alternative investment funds (AIF).
The guidance implements mandates established under Directive (EU) 2024/927, which amended the Alternative Investment Fund Managers Directive (AIFMD) and the UCITS Directive. ESMA's guidance establishes coherent supervisory practices and ensures uniform application of EU law regarding the selection, activation, and calibration of liquidity management tools. The guidance applies to competent authorities and fund managers across the European Union.
Fund managers bear primary responsibility for liquidity risk management and must select appropriate tools from a prescribed list, including quantitative instruments (redemption restrictions, notice period extensions, redemption suspensions, in-kind redemptions) and anti-dilution tools (redemption fees, swing pricing, dual pricing, anti-dilution levies). Managers must select at least two appropriate tools and may select additional tools or liquidity measures to ensure fund resilience under both normal and stressed market conditions.
The guidance requires managers to evaluate tool suitability considering fund structure, investment strategy, trading terms, asset liquidity profiles, stress test results, investor base characteristics, and operational complexities. Managers must demonstrate that activation and calibration serve all investors' best interests and are appropriate to market conditions and fund characteristics. For anti-dilution tools, managers must calibrate based on estimated liquidity costs, including explicit and implicit transaction costs, and review calibrations regularly.
Competent authorities must notify ESMA within two months of publication whether they comply with the guidance, providing reasons for any non-compliance. The guidance applies from the date the new technical regulatory standards take effect under the UCITS Directive and AIFMD, with a 12-month transition period for existing funds.