On 15 April 2025, the European Securities and Markets Authority (ESMA) published two key documents concerning Liquidity Management Tools (LMTs) applicable to UCITS and open-ended AIFs:
- The Final Report on Guidelines regarding the selection, activation and calibration of LMTs;
- The Final Report on Draft Regulatory Technical Standards (RTS) defining the technical characteristics of LMTs.
These publications are part of the implementation of Directive (EU) 2024/927, which amends the AIFMD and UCITS Directives to strengthen liquidity risk management in open-ended funds.
Implementation timeline
- The draft RTS have been submitted to the European Commission, which must decide on their adoption within three months (extendable by one month).
- Once adopted, the RTS will become directly applicable across all Member States.
- The Guidelines will apply 12 months after the RTS enter into force, allowing time for implementation by asset managers.
Key points to remember
- Asset Management companies must select at least two LMTs, including one anti-dilution tool (e.g., swing pricing, anti-dilution levy) and one quantitative tool (e.g., suspension, redemption gates).
- Redemption gates can now be calibrated as a percentage of NAV, a monetary threshold, or a percentage of liquid assets (for AIFs only).
- In-kind redemptions by authorised participants in ETFs are excluded from the LMT framework.
- Prescriptive requirements regarding uniform application across share classes have been removed.
- The technical characteristics of redemption fees, swing pricing, dual pricing and anti-dilution levies have been clarified, with flexibility introduced to reflect market practices.
- The use of side pockets is defined, with distinct rules for their implementation through accounting segregation or physical separation.
Next steps for asset management companies
Asset managers should:
- Anticipate operational and documentation updates to comply with the new standards,
- Review their liquidity management framework and ensure alignment with the RTS technical specifications,
- Prepare for full compliance with the Guidelines within 12 months following the RTS adoption.
For any questions or assistance in implementing the new ESMA framework, our firm is available to support your compliance efforts.