Only “baby steps” made on fund liquidity

In April this year, a major asset management and capital market body issued a report urging EU member states to make as many market-based tools available as possible to support fund liquidity.

The bodies, which included the International Capital Markets Association (ICMA) and the European Fund and Asset Management Association (Efama), issued the report in response to public concerns that funds may be inadequately equipped to meet redemption demands in difficult market conditions.

It found that in several key EU jurisdictions, market tools such as swing pricing, dilution levies, dual pricing and side pockets were not available – conversely, in the member states in which they were available, they were not widely exploited.

Six months on, Patrik Karlsson, director of market practice and regulatory policy at the ICMA, said there’s been scant tangible progress, with industry players at best taking “baby steps”, despite a comprehensive liquidity management framework available to managers.

“The European Securities and Markets Authority (Esma) responded positively to the report, but they haven’t officially endorsed it. On the other hand, national regulators have been more proactive in their responses,” he told Funds Europe.

“For instance, our report showed Germany performed extremely poorly, with most of the key liquidity tools available to investors in other jurisdictions unavailable there. The German Federal Financial Supervisory Authority (FFSA) welcomed our findings, and has indicated it intends to address the issue.”

The FFSA declined to comment on specific plans for reform.

Just how vital liquidity tools can be was underscored in the weeks following the June 23 referendum on the UK’s membership of the European Union, when half the funds in the UK Investment Association property sector were suspended.

Panicked investors rushed to redeem their investments, but funds were unable to meet demand due to a lack of liquidity. Many took months to resume trading, and some remain suspended.

©2016 funds europe

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