The Board of IOSCO published a consultation report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes.
The Board of the International Organization of Securities Commissions (IOSCO) today published a consultation report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes. The report provides detailed guidance to support greater and more consistent use of anti-dilution liquidity management tools by responsible entities for open-ended funds – in both normal and stressed market conditions.
Anti-dilution liquidity management tools form a critical component of an overall liquidity risk management framework for open-ended funds. Remaining open-ended fund investors are disadvantaged, and transacting investors potentially benefit, if transacting investors do not bear the costs of liquidity associated with fund subscriptions/redemptions. The consistent use of well-calibrated anti-dilution liquidity management tools by responsible entities addresses these investor protection concerns by passing on to transacting open-ended fund investors the costs of liquidity otherwise born by the portfolio, by adjusting the price at which they transact to account for explicit and implicit costs of trading. In a stressed market scenario, the deployment of well-calibrated anti-dilution liquidity management tools can also dampen the impact of open-ended fund buying and selling activities in underlying asset markets (including those associated with a potential first mover advantage) – and thus support financial stability.
IOSCO is publishing this consultation report in coordination with the FSB’s consultation on Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds – Revisions to the FSB’s 2017 Policy Recommendations. Implementation of the revised FSB Recommendations, combined with the new IOSCO guidance on anti-dilution liquidity management tools, is expected to lead to a significant strengthening of liquidity management by open-ended fund managers compared to current practices.
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