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 for undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) of open-ended type.
The guidance implements mandates established 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 addresses Articles 18a(2) of the UCITS Directive and Articles 16(2b) and 16(2c) of the AIFMD, requiring fund managers to select and calibrate appropriate liquidity management tools to manage liquidity risk and mitigate financial stability risks.
The guidance establishes that fund managers retain primary responsibility for liquidity risk management and must select at least two suitable liquidity management tools from prescribed lists. ESMA recommends fund managers consider both quantitative tools—including redemption gates, redemption restrictions, and notice period extensions—and anti-dilution tools such as redemption fees, swing pricing, dual pricing, and anti-dilution levies. The guidance emphasises that fund managers should assess tool suitability based on fund structure, investment strategy, investor profile, asset liquidity, stress test results, and operational constraints.
ESMA specifies that suspensions should be activated only in exceptional circumstances, while redemption restrictions and notice period extensions should be considered for all funds. Anti-dilution tools should be calibrated to reflect estimated liquidity costs fairly. The guidance also addresses illiquid asset segregation, recommending activation only in exceptional cases affecting fund operations.
Competent authorities must notify ESMA within two months of publication whether they comply with the guidance. The guidance applies from the date of application of technical regulatory standards under the amended directives, with a twelve-month transition period for existing funds.