IOSCO Reports on Liquidity Management Tools in Collective Investment Schemes

IOSCO mapped existing liquidity management frameworks in 26 member jurisdictions in a report titled "Liquidity Management Tools in Collective Investment Schemes" ("CIS"). The report focused on tools to help managers deal with "exceptional situations" (e.g., significant redemption pressure).

Based on a survey sent to members of IOSCO's "Committee 5," the report outlined various frameworks and policy tools that are currently at the disposal of asset managers, as well as the scope of the funds to which they apply. IOSCO emphasized that the report "provides a useful, jurisdictional level, reference point on the liquidity management tools available globally."

The report made the following determinations:

• Many liquidity management tools are available to jurisdictions, some of which are tailored specifically to the features and nature of the funds considered (e.g., money market funds, real estate funds or hedge funds). In particular, most jurisdictions distinguish open-ended schemes from closed-ended ones.
• The most common tools are redemptions fees, redemptions gates, redemptions in kind, side pockets and the suspension of redemptions. Suspension of redemptions is available in all responding jurisdictions. It has the power to activate, in exceptional circumstances, in the hands of both the fund/asset manager and regulator.
• Funds generally are required to have appropriate risk management and internal quality controls in order to ensure that all material risks are properly identified, assessed, monitored and controlled.
• Open-ended funds generally are subject to additional regulatory requirements dealing with fund leverage, asset concentration, investor concentration, restrictions on illiquid asset investment, and short-term borrowings.
• The existence of liquidity management tools generally are communicated upfront in fund disclosure documents, with the responsibility to activate tools placed in the hands of the fund manager/operator or trustee.
• Historically, many of the liquidity management tools outlined in the report have been activated within individual jurisdictions. The recent financial crisis is particularly rich as a source of recent case studies.