TITLE: European Securities and Markets Authority Issues Liquidity Management Tools Guidance for Collective Investment Undertakings and Alternative Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidelines on liquidity management tools for undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) of open-type structure. The guidelines establish consistent supervisory practices for the selection, calibration, and activation of liquidity management tools across European Union member states.
The guidelines apply to competent authorities and fund managers under Article 18a(2) of the UCITS Directive (2009/65/ES) and Articles 16(2b) and 16(2c) of the Alternative Investment Fund Managers Directive (2011/61/EU), as amended by Directive (EU) 2024/927. They take effect from the date of application of the related regulatory technical standards, with a 12-month transition period for funds existing prior to that date.
Fund managers remain primarily responsible for managing liquidity risk and selecting appropriate tools. The guidelines require managers to select at least two suitable liquidity management tools from prescribed lists, considering factors including fund structure, investment strategy, operating conditions, liquidity profile, stress test results, investor base characteristics, and distribution policies. Managers may select quantitative tools (redemption restrictions, notice period extensions) and anti-dilution tools (redemption fees, swing pricing, dual pricing, anti-dilution fees), or additional measures beyond the minimum two tools.
The guidelines address specific tool applications: suspension of subscriptions and redemptions only in exceptional circumstances; redemption restrictions for concentrated investor bases and illiquid assets; notice period extensions particularly for funds investing in less liquid assets; in-kind redemptions for professional investors; and anti-dilution fees for funds with high investor concentration or significant subscription and redemption flows. Side pockets may be activated only in exceptional circumstances involving valuation uncertainty or specific sector crises.
Competent authorities must notify ESMA within two months of publication whether they comply with these guidelines or provide reasons for non-compliance. Financial market participants are not required to report compliance.
REFERENCES:
European Securities and Markets Authority. (2026, March 12). Guidelines on liquidity management tools for UCITS and open-ended AIF. ESMA34-671404336-1364. Retrieved from www.esma.europa.eu