European Securities and Markets Authority Consults on Liquidity Management Tools for Funds | A&O Shearman

The European Securities and Markets Authority has published for consultation draft regulatory technical standards and guidelines relating to liquidity management tools under the Alternative Investment Fund Managers Directive and the Undertakings for the Collective Investment in Transferable Securities Directive. The draft RTS will apply to Alternative Investment Fund Managers managing open-ended the Alternative Investment Funds and UCITS. In the draft RTS ESMA defines the constituting elements of each LMT, such as calculation methodologies and activation mechanisms.

ESMA is also consulting on guidelines on LMTs of UCITS and open-ended AIFs, which provide guidance on how managers should select and calibrate LMTs in the light of their investment strategy, their liquidity profile and the redemption policy of the fund.

The draft RTS and guidelines are designed to promote convergent application of the Directives for both UCITS and open-ended AIFs and ensure that EU fund managers are better equipped to manage the liquidity of their funds, in preparation for market stress situations. They also intend to clarify the functioning of specific LMTs, such as the use of side pockets, a practice that currently varies significantly across the EU. The deadline for comments is October 8, 2024. ESMA aims to deliver the final RTS and guidelines by April 16, 2025.

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