Background
Changes to the AIFMD and UCITS Directive which introduce a harmonised framework for the use of liquidity management tools ("LMTs") must be implemented into EU member state law by 16 April 2026.
The European Securities and Markets Authority ("ESMA") recently consulted on a framework for the use of LMTs by AIFMs managing open-ended alternative investment funds ("AIFs") and by management companies of UCITS (each a "manager"). On 15 April 2025, ESMA published final guidelines on the selection and calibration of LMTs (the "Guidelines") and updated draft regulatory technical standards ("RTS") to determine the characteristics of the LMTs. We have summarised below some of the key differences between the initial draft Guidelines and RTS published as part of the consultation and the proposed final versions of those documents.
What happens next?
The European Commission has until 15 July 2025 to decide whether to endorse the RTS, with the ability to extend this review period by an additional month. The Guidelines will start applying on the date of entry into force of the RTS. Funds existing before the entry into force of the RTS will have twelve months to comply with the Guidelines.
What should AIFMs and UCITS management companies be doing now?
While the RTS are not yet final and remain subject to potential modification by the European Commission, managers should proactively review their current LMT arrangements against the framework proposed by ESMA to assess any changes that may be necessary to fund documents, policies and procedures and governance arrangements.
RTS
| Regulatory Topic | Initial Draft RTS | Proposed Final RTS |
|---|---|---|
| Redemption gate thresholds | % of NAV only | AIFs: % of the NAV, a monetary value (or a combination of
both), or % of liquid assets UCITS: % of NAV only |
| Calculation of redemption orders | Only net redemption orders allowed when calculating activation thresholds | Managers may use either net or gross redemption orders |
| Treatment of small redemptions | No special treatment; all redemptions subject to gate once threshold exceeded | Managers may now exempt small redemption orders (below a defined amount) from the gate, to protect smaller investors |
| Application across share classes | Required uniform application of LMTs across all share classes | This requirement has been removed, acknowledging that ESMA lacks the mandate to regulate LMTs at the share class level |
| ETF market impact | Pro-rata redemption rule applied uniformly, including to ETFs | Clarifies that pro-rata redemption requirement does not apply to ETF authorised participants or market makers on the primary market |
Guidelines
| Regulatory Topic | Initial Draft Guidelines | Final Guidelines |
|---|---|---|
| Selection of LMTs | Recommended selection of one quantitative LMT and one anti-dilution tool | Retained as a recommendation, but clarified that selection remains at the full discretion of the manager |
| Governance requirements | Prescribed internal policies, LMT plans, and governance arrangements | Removed, on the basis that such matters are already covered under the organisational requirements of the AIFMD and UCITS Directive |
| Investor disclosure | Included additional disclosure obligations on activation, deactivation, and calibration of LMTs | Removed, as disclosure requirements are already addressed under the AIFMD (Article 23(1)(h)). UCITS were not referenced in this context |
| Depositary responsibilities | Imposed a duty on depositaries to verify the proper application of LMTs by managers | Removed, as ESMA lacks a legal mandate to impose these duties and existing rules are sufficient |
| Prescriptive calibration guidelines | Included restrictive obligations on the selection, activation and calibration of LMTs | Removed to preserve manager discretion and avoid overlap with RTS requirements |
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
