06/14/2022 | Press release | Distributed by Public on 06/13/2022 23:58
The CSSF presents in this joint work with two co-authors from the BIS an empirical assessment of the effectiveness of liquidity management tools used by Luxembourg-domiciled open-ended funds (UCITS) during the COVID-19 crisis and the years before.
The analysis focuses on the following tools:
The main findings are the following:
Overall, these results generally confirm the relevance and effectiveness of these tools in contributing to the overall liquidity risk management of open-ended funds, especially in supporting open-ended funds in managing large outflows. However, they also call for further guidance to support fund managers in assessing the liquidity of their portfolio to better reflect a macroprudential perspective and internalise the risk of concerted selling of assets by funds in a stress scenario. Further guidance could also be given to the calibration of swing pricing to make it more responsive to deteriorating market conditions. Finally, additional guidance on the use and timing of suspensions could make these more effective and enhance market stability.
The authors therefore trust that this paper will contribute to the current work being carried out on the regulatory framework for open-ended funds in international fora, such as by FSB, IOSCO and international securities regulators, particularly on additional conclusions to be drawn from the recent COVID-19 crisis. It should also encourage fund managers to critically consider the above findings with a view to assess the appropriateness of their liquidity management processes for their managed products.