ESMA seeks input on Liquidity Management Tools for funds
On 8 July 2024, the European Securities and Markets Authority (ESMA) initiated a consultation on draft guidelines and technical standards under the revised Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. These directives aim to enhance financial stability and standardise liquidity risk management across the investment funds sector.
Draft Regulatory Technical Standards (RTS): ESMA's draft RTS outline the characteristics of Liquidity Management Tools (LMTs), detailing calculation methods and activation mechanisms. The goal is to ensure consistent application of LMTs across UCITS and open-ended AIFs, equipping EU fund managers to better handle liquidity during market stress conditions.
Guidelines on LMTs: The draft guidelines provide instructions for selecting and calibrating LMTs based on the fund’s investment strategy, liquidity profile, and redemption policy. They also clarify the use of specific LMTs, such as side pockets, which vary widely in practice across the EU.
ESMA's consultation invites feedback from stakeholders, including fund managers, depositories, and investors, with responses due by 8 October 2024. The final RTS and guidelines are expected to be published by 16 April 2025.
ESMA’s press release can be found here.
The consultation paper on the draft RTS on Liquidity Management Tools under the AIFMD and UCITS Directive can be found here.
The consultation paper on the guidelines on Liquidity Management Tools of UCITS and open-ended AIFs can be accessed here.
