TITLE: European Securities and Markets Authority Issues Guidelines on Liquidity Management Tools for Fund Managers and Open Alternative Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidelines on liquidity management tools for fund managers and open alternative investment funds (AIFs). The guidelines apply to competent authorities and fund managers under Article 18a.2 of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS Directive) and Articles 16.2b and 16.2c of the Alternative Investment Fund Managers Directive (AIFM Directive).
The guidelines establish consistent supervisory practices for the selection, activation, and calibration of liquidity management tools to address liquidity risks and reduce financial stability risks. Fund managers retain primary responsibility for managing liquidity risks and selecting appropriate tools from available options, which include quantity-based tools (redemption gates, notice period extensions, redemption in kind, and temporary suspensions) and anti-dilution tools (redemption fees, swing pricing, dual pricing, and anti-dilution levies). The guidelines also address side pockets for exceptional circumstances.
ESMA requires fund managers to assess tool suitability considering fund structure, investment strategy, trading terms, liquidity profile, stress test results, investor base characteristics, and operational constraints. Managers should select at least two appropriate tools and may choose additional measures to enhance fund resilience. The guidelines recommend combining quantity-based tools with anti-dilution tools where appropriate, tailoring choices to normal and stressed market conditions. For anti-dilution tools, managers must calibrate thresholds to reflect estimated liquidity costs, including explicit and implicit transaction costs, reviewed regularly and adjusted as needed.
Competent authorities must report compliance or non-compliance within two months of publication. The guidelines apply from the date technical standards under Article 18a.3 of the UCITS Directive and Article 16.2g of the AIFM Directive take effect, with a twelve-month transition period for pre-existing funds.
REFERENCE:
ESMA34-671404336-1364, Guidelines on Liquidity Management Tools for UCITS and open AIFs (12 March 2026)