Key asset management and capital market groups have called on countries to make as many market-based tools available as they can to support fund liquidity.
The groups, including the International Capital Market Association (ICMA), made the recommendation in a report written in response to public concerns that funds might not be able to meet redemption demands in difficult market conditions.
Market tools, such as swing pricing, are not always used across EU jurisdictions. For example, swing pricing is not available to funds in Belgium, Germany and Spain.
Other examples that the ICMA, the European Fund and Asset Management Association (Efama) and the Asset Management and Investors Council give of market-based liquidity measures include dilution levy, ‘dual pricing’ (redemption fees), side pockets and suspension of redemptions.
The report, called ‘Managing fund liquidity risk in Europe’ has been produced after worries that the reduced presence of banks acting as dealers in capital markets would affect liquidity, especially in the bond markets. Post-crisis regulation like Basel III and the structural shift caused are behind this.
Martin Scheck, chief executive of the ICMA, said the report showed that there is a “comprehensive framework already in place available to managers to manage liquidity in difficult market conditions, through a combination of regulatory requirements and market-based tools”.
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