Wednesday April 8 2020

News Source: Fund Regulation

Focus: Liquidity Risk Management

Type: General

Country: France




The AMF have issued a reminder to AMCs of their obligations to put in place adequate and effective arrangements, procedures and techniques, to measure and manage at any time the risks which the UCITS and AIFs they manage are or might be exposed to, in particular liquidity risk management.

AMCs that experience particular difficulties, especially those that need to activate certain liquidity management mechanisms (gates, side pockets, suspension of subscription and redemption orders, etc.) on their French or foreign funds (managed under the European passport), are asked to contact the AMF without delay, especially for transactions requiring authorisation (including, where applicable, the possible creation of side pockets under the provisions of the PACTE Law).

As such, in the context of the current health crisis and market turmoil, the AMF reminds AMCs that they have tools for managing the liquidity risk of French CIUs. These tools are designed not only to protect the interests of clients and ensure that they are treated fairly, but also to ensure financial stability and guarantee market integrity.

Accordingly, depending on the degree of deterioration in liquidity, it may be in the interest of investors to activate one of the mechanisms listed below (non-exhaustive list:

  1. “Swing pricing” (or “adjusted net asset value”) and “anti-dilution levies” mechanisms
  2. Mechanism for capping redemptions (gates mechanism)
  3. Side pocket mechanism
  4. Temporary suspension of redemptions
  5. Redemption notice period

The AMF a favours the use of “swing pricing” and “anti-dilution levies” mechanisms during the current crisis, given the low liquidity of certain underlying assets and the sometimes high costs involved in restructuring portfolios.

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