CSSF Circular 26/910 on ESMA Guidelines for Liquidity Management Tools in UCITS and Open-ended AIFs

Circular CSSF 26/910
ESMA Guidelines on Liquidity
Management Tools (LMTs) of
UCITS and open-ended AIFs
(ESMA34-671404336-1364)

CIRCULAR CSSF 26/910
2/4
Circular CSSF 26/910
ESMA Guidelines on Liquidity Management Tools (LMTs) of UCITS and open-ended AIFs (ESMA34-671404336-1364) To all Luxembourg investment fund managers, to all Luxembourg undertakings for collective investment and to those involved in the operation and supervision of such undertakings. Luxembourg, 15 April 2026 Ladies and Gentlemen, The purpose of this circular is to inform you that the CSSF, in its capacity as competent authority, applies the ESMA Guidelines on Liquidity Management Tools (LMTs) of UCITS and open-ended AIFs (ESMA34-671404336-1364) (the “Guidelines”), published on 12 March 2026, and is integrating the Guidelines into its administrative practice and regulatory approach with a view to promoting supervisory convergence in this field at European level. The Guidelines are attached to this circular and are available on ESMA’s website at https://www.esma.europa.eu/document/guidelines-liquidity-management-tools-ucits-and-open￾ended-aifs.

1. The Guidelines
   Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 (“Directive (EU) 2024/927”) amending Directives 2011/61/EU (the “AIFMD”) and 2009/65/EC (the “UCITS Directive”) as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds introduced, among others, requirements in relation to LMTs for UCITS and AIFMs managing open￾ended AIFs. The AIFMD and the UCITS Directive are supplemented by Commission Delegated Regulations (EU) 2026/465 (pertaining to the AIFMD) and (EU) 2026/466 (pertaining to the UCITS Directive) with regard to regulatory technical standards (“RTS”), as referred to in Article 16(2g) of the AIFMD and
   Article 18a(3) of the UCITS Directive, specifying the characteristics of LMTs.
   Directive (EU) 2024/927 has been transposed into Luxembourg legislation by the Law of 3 March 2026, which amends the Law of 17 December 2010 relating to undertakings for collective investment (the “2010 Law”) and the Law of 12 July 2013 on alternative investment fund managers (the “2013 Law”). The Guidelines were developed on the basis of Article 16(2h) of the AIFMD, Article 18a(4) of the UCITS Directive and Article 16(1) of Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority). The purpose of the Guidelines is to establish guidelines on the selection and calibration of LMTs by UCITS and AIFMs for liquidity risk management and for mitigating financial stability risks. Whilst the primary responsibility for LMTs remains, in accordance with the Guidelines, with the UCITS and AIFMs, the purpose of the Guidelines is also to establish consistent, efficient and effective supervisory practices and to ensure the common, uniform and consistent application of Union law,

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3/4 in particular of Article 18a(2) of the UCITS Directive (Article 52-1(1) of the 2010 Law) and Article 16(2b) and (2c) of the AIFMD (Article 15-1(1) and (2) of the 2013 Law) in relation to the selection, activation and calibration of LMTs.
2. Scope
The present circular applies to the following investment fund managers (“IFMs”) in respect of the UCITS and open-ended AIFs they manage:

• management companies incorporated under Luxembourg law and subject to Chapter 15 of the
  2010 Law;
• management companies incorporated under Luxembourg law and subject to Article 125-2 of
  Chapter 16 of the 2010 Law;
• Luxembourg branches of IFMs subject to Chapter 17 of the 2010 Law authorised under the
  provisions of Article 125-2 of the 2010 Law;
• UCITS investment companies which have not designated a management company within the
  meaning of Article 27 of the 2010 Law;
• AIFMs authorised under Chapter 2 of the 2013 Law; as well as
• internally managed AIFs within the meaning of point (b) of Article 4(1) of the 2013 Law.
  The CSSF recommends that the following undertakings for collective investment (“UCIs”) consider the provisions of this Circular, in conjunction with Commission Delegated Regulation (EU) 2026/465:
• open-ended specialised investment funds (“SIFs”) not governed by Part II of the Law of 13
  February 2007 (the “2007 Law”), which are subject to the provisions of CSSF Regulation N° 15- 07 laying down detailed rules for the application of Article 42a of the 2007 Law as regards the requirements in relation to risk management and conflicts of interest; and
• open-ended UCIs subject to Part II of the 2010 Law, which are managed by a registered AIFM as
  defined in the 2013 Law.

3. Summary of the main elements of the Guidelines
   The Guidelines are divided into four main sections addressing in particular (1) general principles, (2) quantitative-based LMTs (i.e. suspension of subscriptions, repurchases and redemptions; redemption gates; extension of notice periods and redemptions in kind), (3) anti-dilution tools (the “ADTs”) (i.e. redemption fees, swing pricing, dual pricing and anti-dilution levy) and (4) side pockets. The general principles emphasise the primary responsibility of IFMs for liquidity risk management, as well as for the selection, calibration, activation and deactivation of LMTs. They further highlight that, in the selection of the appropriate LMTs, IFMs should give due consideration that the selected LMTs will allow to effectively manage the fund’s liquidity risk under both normal and stressed market conditions and that the selection is as comprehensive as possible to address different circumstances. In order to assist IFMs in the selection and suitability assessment of LMTs for their funds, the Guidelines provide a minimum set of relevant factors that IFMs should consider (i.e. the fund’s legal structure, the fund’s investment strategy/policy, the dealing terms of the fund, the liquidity profile of the fund, the results of liquidity stress testing, the characteristics of the fund’s investor base, the fund’s distribution policy and any other operational barriers/complexities). The Guidelines further mention that IFMs may choose to select more than the mandatory two LMTs from the lists contained in Annex IIA of the UCITS Directive and Annex V of the AIFMD as well as

CIRCULAR CSSF 26/910
4/4 additional liquidity measures. Thereby, IFMs should consider, where appropriate, the merit of selecting at least one quantitative-based LMT and at least one ADT, while also considering selecting one LMT to use under normal market conditions and one LMT to be used under stressed market conditions. When considering the activation of LMTs, IFMs should be mindful of whether it is more appropriate to activate the LMTs individually or in combination with additional LMTs or other liquidity measures. IFMs should be able to demonstrate at the request of the CSSF that the calibration and activation of the selected LMTs are in the best interest of all investors and are appropriate and effective considering the market conditions and relevant characteristics of the fund. IFMs should also avoid that some investors will be able to benefit from information on the probability of the activation of LMTs. The subsequent sections of the Guidelines provide bespoke guidance on each LMT that is contained in Annex IIA of the UCITS Directive and Annex V of the AIFMD. This guidance covers various different aspects that IFMs should consider in relation to the selection, activation and calibration of LMTs. Specifically, with regard to ADTs, the Guidelines state that they should be considered for all types of funds for the purpose of imposing the estimated costs of liquidity on transacting investors under both normal and stressed market conditions to mitigate material investor dilution and potential first mover advantage. However, according to the Guidelines, IFMs should consider that the activation of ADTs may be more challenging in certain circumstances (e.g. in cases of limited market liquidity and/or valuation uncertainty). It is reminded that the activation of ADTs does not affect the IFM’s duty to value all assets fairly and appropriately at all times and that IFMs should regularly review the calibration of ADTs and make adjustments when necessary to ensure the ADTs reflect the estimated costs of liquidity effectively. At the request of the CSSF, IFMs should be able to demonstrate that the calibration of ADTs is fair and reasonable for both normal and stressed market conditions, taking into account the best interests of investors.
4. Entry into force
The Circular with the Guidelines apply as from 16 April 2026. By way of derogation, for funds existing before the date of application, the Guidelines apply twelve months from that date (i.e. 16 April 2027). Pascale TOUSSING Director Claude WAMPACH Director Marco ZWICK Director Jean-Pierre FABER Director Claude MARX Director General
Annex ESMA Guidelines on Liquidity Management Tools (LMTs) of UCITS and open￾ended AIFs (ESMA34-671404336-1364)

12/03/2026
ESMA34-671404336-1364
Guidelines
On Liquidity Management Tools (LMTs) of UCITS and open-ended AIFs

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Table of Contents

1. Scope ............................................................................................................................ 3
2. Legislative references, abbreviations and definitions .................................................... 4
   2.1 Legislative references ........................................................................................... 4
   2.2 Abbreviations ........................................................................................................ 4
   2.3 Definitions ............................................................................................................. 5
3. Purpose ......................................................................................................................... 5
4. Compliance and reporting obligations ........................................................................... 6
   4.1 Status of the guidelines .............................................................................................. 6
   4.2 Reporting requirements .............................................................................................. 6
5. Guidelines on LMTs of UCITS and open-ended AIFs ................................................... 7
   5.1 Guidelines on general principles .......................................................................... 7
   5.2 Guidelines on quantitative-based LMTs ............................................................... 8
   5.2.1 Guidelines on suspension of subscriptions, repurchases and redemptions
   (“suspensions”) 8
   5.2.2 Guidelines on redemption gates 9
   5.2.3 Guidelines on the extension of notice periods 10
   5.2.4 Guidelines on Redemptions in Kind (RiK) 11
   5.3 Guidelines on Anti-Dilution Tools (ADTs) ........................................................... 11
   5.3.1 Guidelines on redemption fees 12
   5.3.2 Guidelines on swing pricing 13
   5.3.3 Guidelines on dual pricing 13
   5.3.4 Guidelines on Anti-Dilution Levy (ADL) 14
   5.4 Guidelines on side pockets ................................................................................. 14

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1. Scope
   Who?
2. These guidelines apply to competent authorities and fund managers
   What?
3. These guidelines apply in relation to Article 18a(2) of the UCITS Directive and Article
   16(2b) and (2c) of the AIFMD.
   When?
4. These guidelines apply on the date of application of the RTS referred to in Article
   18a(3) of the UCITS Directive and Article 16(2g) of the AIFMD.
5. By way of derogation from the first subparagraph, in respect of a fund existing before
   the date of application referred to in that subparagraph, these guidelines apply twelve months from that date.

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2. Legislative references, abbreviations and definitions
2.1 Legislative references
UCITSD Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)1 AIFMD Directive 2011/65/EU on Alternative Investment Fund managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/20102 ESMA Regulation Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC3
2.2 Abbreviations
UCITS Undertaking in Collective Investment in Transferable Securities AIF Alternative Investment Fund AIFM Alternative Investment Fund Manager LMT Liquidity Management Tool NAV Net Asset Value ADT Anti-Dilution Tool ADL Anti-Dilution Levy 1 OJ L 302, 17.11.2009, p. 32. 2 OJ L 174, 1.7.2011, p.1. 3 OJ L 331, 15.12.2010, p. 84.

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2.3 Definitions
fund manager a) a management company as defined in Article 2(1)(b) of the UCITS Directive; b) an investment company that has not designated a management company authorised pursuant to the UCITS Directive referred to in Article 30, first subparagraph, of the UCITS Directive; c) an AIFM as defined in Article 4(1)(b) of the AIFMD that manages an open-ended AIF ADTs redemption fees, swing pricing, dual pricing, ADLs selected LMTs the LMTs selected by the fund manager among those included in Annex IIA, points 2 to 8, of the UCITSD and in Annex V, points 2 to 8, of the AIFMD, i.e.: redemption gate, extension of notice periods, redemption fee, swing pricing, dual pricing, anti-dilution levy, redemption in kind exceptional circumstances unforeseen events, operational environments or regulatory environments that materially impact the fund’s ability to carry out normal business functions which would temporarily prevent the fund manager from meeting the funding obligations arising from the liabilities side of the balance sheet
3. Purpose
5. These guidelines are published under mandates set out in the amending Directive of
the AIFMD and UCITS Directive (Directive (EU) 2024/927 of the European Parliament and of the Council4). More specifically, the mandates in Article 18a, paragraph 4, of the UCITS Directive and Article 16, paragraph 2h, of the AIFMD provide that ESMA shall develop guidelines on the selection and calibration of liquidity management tools by UCITS and AIFMs for liquidity risk management and for mitigating financial stability risks. 4 Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds (OJ L, 2024/927, 26.3.2024).

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6. These guidelines are also based on Article 16(1) of the ESMA Regulation.
7. Whilst the primary responsibility for LMTs remains with the UCITS and AIFMs, the
purpose of these guidelines is to establish consistent, efficient and effective supervisory practices and to ensure the common, uniform and consistent application of Union law, in particular of Article 18a(2) of the UCITS Directive and Article 16(2b) and (2c) of the AIFMD in relation to the selection, activation and calibration of LMTs.
4. Compliance and reporting obligations
4.1 Status of the guidelines
8. In accordance with Article 16(3) of the ESMA Regulation, competent authorities and
financial market participants must make every effort to comply with these guidelines.
9. Competent authorities to which these guidelines apply should comply by incorporating
them into their national legal and/or supervisory frameworks as appropriate, including where particular guidelines are directed primarily at financial market participants. In this case, competent authorities should ensure through their supervision that financial market participants comply with the guidelines.
4.2 Reporting requirements
10. Competent authorities to which these guidelines apply must notify ESMA whether they
comply or intend to comply with the guidelines, with reasons for non-compliance, within two months of the date of publication by ESMA. In the absence of a response by this deadline, competent authorities will be considered as non-compliant. A template for notifications is available from the ESMA website.
11. Financial market participants are not required to report whether they comply with
these guidelines.

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5. Guidelines on LMTs of UCITS and open-ended AIFs
5.1 Guidelines on general principles
12. The primary responsibility for liquidity risk management, as well as for the selection,
calibration, activation and deactivation of LMTs, remains with the fund manager. In the selection of the appropriate LMTs, fund managers should give due consideration that the selected LMTs will allow to effectively manage the fund’s liquidity risk under both normal and stressed market conditions and that the selection is as comprehensive as possible to address different circumstances.
13. In accordance with Article 18a(2) of the UCITSD and Article 16(2b) of the AIFMD,
when selecting LMTs from Annex IIA of the UCITS Directive and Annex V of the AIFMD, fund managers should assess the suitability of those tools in light of all relevant factors, including at least the following:
a) the fund’s legal structure and any specific features associated with the manner in which it is structured (e.g. ETFs, master-feeder structure); b) the fund’s investment strategy and investment policy; c) the dealing terms of the fund including, inter alia, the minimum duration of the notice period, lock up period, settlement period, redemption policy and dealing frequency; d) the liquidity profile of the fund and its underlying assets, including any anticipated liquidity demands, taking into account investors’ redemptions and other potential sources of liquidity risk from the liability side of the fund’s balance sheet (e.g.:
margin calls) under normal and stressed market conditions and the impact on the liquidity profile of the fund of the activation of the LMTs; e) the results of liquidity stress testing; f) the characteristics of the fund’s investor base; g) the fund’s distribution policy; h) any other relevant operational barriers and complexities that may impact on the feasibility of implementing certain LMTs.
14. While the UCITSD and AIFMD require the selection of at least two appropriate LMTs
from the lists contained in Annex IIA of the UCITS Directive and Annex V of the AIFMD, managers may choose to select more than two LMTs as well as additional

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 8 liquidity measures, in order to ensure the fund’s overall resilience and ability to manage its liquidity during both normal and stressed market conditions. In selecting additional LMTs or liquidity measures, fund managers should assess their suitability in light of all relevant factors, including at least the factors referred to in the previous paragraph.
15. In the selection of the two minimum mandatory LMTs, fund managers should consider,
where appropriate, the merit of selecting at least one quantitative-based LMT (i.e.:
redemption gates, extension of notice period) and at least one ADT (i.e.: redemption fees, swing pricing, dual pricing, ADL), taking into consideration the investment strategy, redemption policy and liquidity profile of the fund and the market conditions under which the LMT could be activated. In this context, fund managers may consider whether to select one LMT to use under normal market conditions and one LMT to be used under stressed market conditions.
16. When considering the activation of LMT(s), fund managers should assess whether to
activate LMTs individually or in combination with additional LMTs or other liquidity measures.
17. Fund managers should be able to demonstrate, at the request of the competent
authority, that the activation and calibration(s) of the selected LMTs are in the best interest of all investors and are appropriate and effective in light of market conditions and the relevant characteristics of the fund (e.g.: the liquidity profile, the type of underlying assets, the investor base).
18. Fund managers should ensure that the level of subscription and redemption orders
received is treated in a manner which avoids that some investors benefit from information on the probability that LMTs may be activated (e.g.: activation thresholds may be reached in case of redemption gates).
5.2 Guidelines on quantitative-based LMTs
5.2.1 Guidelines on suspension of subscriptions, repurchases and
redemptions (“suspensions”)
19. Fund managers should consider the activation of suspensions only in exceptional
circumstances and where justified having regard to the interests of its investors. A non-exhaustive list of exceptional circumstances under which a fund manager may consider activating suspensions includes: asset valuation difficulties; severe liquidity issues (e.g.: due to margin calls, significant withdrawal) where executing the sale of underlying assets could cause liquidity issues for the fund (e.g.: large discounts in asset sales, large dilution of remaining investors); critical cyber incident that impacts

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 9 on the fund, the fund manager and/or fund’s services provider capacity to operate; unforeseen market closures, trading restrictions, closure of trading venues; severe financial and/or political crisis; identification of significant fraud; natural disaster.
20. The suspensions may include the suspension of the NAV calculation, particularly in
case of uncertain valuation and where it is not possible to compute the NAV of the fund(s). In other cases, and whenever possible, the fund manager should continue to value the assets in the fund and publish a NAV to ensure proper information is provided to investors, including the fact that the fund is closed for subscriptions, repurchases and redemptions.
21. Whilst suspensions, in some cases, may be activated while the fund manager is
deciding whether to liquidate the fund, fund managers should ensure that suspensions are activated only on a temporary basis (i.e.: with the view not to permanently suspend the fund, but to re-open it, or liquidate it or activate side pockets, if necessary, at a certain point in time).
22. Fund managers should consider relevant calibrations for suspensions to include:
a) the criteria for assessing and monitoring the conditions that prompted their activation; b) the criteria for reviewing and potentially revising the decision to suspend and the change in circumstances that would warrant this.
5.2.2 Guidelines on redemption gates
23. Fund managers should consider the selection of redemption gates for all funds, as all
assets could potentially suffer from liquidity issues during stressed market conditions and the activation of this LMT may be useful to avoid the activation of suspensions.
24. The selection of redemption gates should be considered especially by:
a) fund managers of funds with a concentrated investor base, where a redemption of a significant size could cause liquidity issues to the fund and affect investors, particularly the remaining ones; b) fund managers of funds whose assets might be less liquid, inherently illiquid, or might become illiquid during stressed market conditions and/or assets that might take longer time to sell.
25. Fund managers should consider the activation of redemption gates in cases of
redemption requests when the threshold is exceeded. The activation of redemption

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 10 gates may be less suited where a fund has valuation issues, in which case the manager may consider the use of other LMTs (e.g.: suspensions together with the suspension of the NAV).
26. Fund managers should calibrate the activation threshold in order to ensure that it
operates effectively, so that a redemption gate can be activated whenever the manager needs to limit redemptions in the best interest of investors. In calibrating such threshold, managers should give due consideration to:
a) the NAV calculation frequency; b) the investment objective of the fund; c) the liquidity of the underlying assets; d) the current market conditions; e) the expected cash flows.
27. Fund managers should not restrict the use of redemption gates in terms of the
maximum period over which they can be used (maximum duration of redemption gates) or the maximum number of times that redemption gates can be activated (maximum use of redemption gates), as long as the activation of the gate remains temporary in nature. These matters should be determined by the fund manager on a case-by-case basis. 27.a Fund managers of AIFs with no retail investors and with a limited number of professional investors should consider investor-level redemption gates, alone or in combination with fund-level gates, to mitigate first mover advantage.
5.2.3 Guidelines on the extension of notice periods
28. Fund managers should consider the selection of extension of notice periods for all
funds but, as this LMT provides additional time to liquidate the underlying assets, particular consideration should be given to this LMT in respect of:
a) funds whose liquidity is particularly susceptible to deterioration in times of market stress; b) AIFs invested in less liquid assets and, particularly, for real estate and private equity funds, which should already have an appropriate redemption frequency in line with the level of liquidity of their assets under normal market conditions.

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29. Fund managers should consider the activation of extension of notice periods both
under normal and stressed market conditions, taking into account that it may be particularly useful in certain circumstances, for instance, in case of redemption pressures.
30. Fund managers should carefully assess whether the activation of the extension of
notice periods is appropriate for UCITS under normal market conditions, taking into consideration the liquidity of their assets and the best interest of investors.
31. In order to avoid prompting an increase of redemptions requests, fund managers
should carefully calibrate the length of the extension of notice periods, considering the time necessary for the orderly liquidation of the underlying instruments in the best interests of the investors.
5.2.4 Guidelines on Redemptions in Kind (RiK)
32. In the selection of RiK, fund managers should consider:
a) the structure of the fund; b) the investor concentration; c) the asset types; and d) the applicable restrictions that apply to the use of RiK to professional investors only, in accordance with Article 18a(2) of the UCITS Directive and Article 16(2b) of the AIFMD.
5.3 Guidelines on Anti-Dilution Tools (ADTs)
33. Fund managers should consider the selection of ADTs for all types of funds to mitigate
material investor dilution and potential first mover advantage.
34. Fund managers should carefully assess the different levels for the activation of ADTs
at fund level and should set in advance and regularly review appropriate and prudent activation thresholds so as to avoid any material dilution impact on investors, in both normal and stressed market conditions and depending on the investment strategy, assets under management, size and portfolio characteristics, estimated cost of liquidity, investor profile, liquidity profile of each fund and historical fund flows.
35. Fund managers should consider that the activation of ADTs may be more challenging
in certain circumstances, for example, when there is limited market liquidity and/or in

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 12 cases of valuation uncertainty. In those cases, fund managers may consider the use of other LMTs in addition to ADTs (e.g.: quantitative-based LMTs).
36. Fund managers should ensure that the activation of ADTs does not affect the fund
manager’s duty to value all assets fairly and appropriately at all times.
37. Fund managers should activate ADTs both under normal and stressed market
conditions to impose the estimated costs of liquidity on subscribing and/or redeeming investors. The estimated cost of liquidity should:
a) include explicit transaction costs of subscriptions, repurchases or redemptions; b) consider implicit transaction costs, including any significant market impact of asset purchases or sales, only where appropriate to the investment strategy and estimated on a best effort basis. A reasonable input for the estimation of the market impact could be to analyse previous transactions under similar market conditions to compare the difference between the price when the order was placed and the final executed price; c) be based, as a starting point, on costs associated with transacting a pro-rata slice of all assets in the portfolio (i.e. “pro-rata approach”), unless this does not represent a fair estimate of the true liquidity cost. Where the pro-rata approach does not represent a fair estimate of the liquidity cost, the estimation can be adjusted to reflect more accurately the expected cost of liquidity when transacting in selected single holdings of the portfolio. Managers may consider using the pro￾rata cost in stressed times, when it is most relevant for mitigating the potential dilution impact on the remaining investors.
38. In order to ensure that the calibration of ADTs effectively reflects the estimated costs
of liquidity, as per the previous paragraph, the fund manager should regularly review the calibration and adjust it when needed.
39. Fund managers should be able to demonstrate, at the request of the relevant NCA,
that the calibration of ADTs is fair and reasonable for both normal and stressed market conditions, taking into account the best interests of investors.
5.3.1 Guidelines on redemption fees
40. Fund managers may consider the selection of redemption fees for all types of funds,
but redemption fees may be most useful in respect of the following funds:
a) funds that invest in assets which have fixed, transparent and/or foreseeable transaction costs, such as real estate agency fees or notary fees, and/or that have

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 13 low-variation transaction costs (e.g.: fixed taxes and levies on real estate transactions); b) funds that are invested in less liquid assets where other ADTs, such as swing pricing, might be challenging or impossible to implement due to infrequent and limited pricing sources.
41. When calibrating the predetermined range of redemption fees, fund managers should
apply a methodology that, if static, allows for review and adjustment, to reflect the higher cost of liquidity or stressed market conditions.
5.3.2 Guidelines on swing pricing
42. Fund managers should consider the selection of swing pricing for funds whose
underlying assets are actively traded and information on trading costs (bid/ask) is available and frequently updated, particularly where the funds invest mainly in assets with market contingent liquidity costs. Fund managers should consider that swing pricing may be less appropriate when trading costs are not readily available.
43. Fund managers should base a decision to activate a specific swing pricing model (i.e.:
full, partial with a single or tiered swing factor), and the calibration of the swing factor, on market conditions, based on a methodology determined by the fund manager.
44. When calibrating swing pricing, fund managers should ensure that the estimated cost
of liquidity, in light of the market conditions and in line with the principles in paragraph 37, is incorporated in the swing factor, including, where appropriate, any significant market impact of the trades.
45. Fund managers may set a maximum swing factor. In case the swing factor adjustment
goes beyond the maximum swing factor, the fund manager should be able to justify, if required by the competent authority, on an ex-post basis the swing factor applied.
46. Fund managers should ensure that a decision to recalibrate the maximum swing factor
is justified and made in the best interest of the investors.
5.3.3 Guidelines on dual pricing
47. Fund managers should consider the selection of dual pricing as potentially appropriate
for funds that invest mainly in assets whose liquidity costs are reflected primarily by a bid-ask spread.
48. While dual pricing may be more suitable for funds that invest in assets whose liquidity
costs are mainly comprised of the bid-ask spread, fund managers should account

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 14 separately by additional adjustment to the NAV any significant market impact or explicit transaction costs.
5.3.4 Guidelines on Anti-Dilution Levy (ADL)
49. Fund managers should consider ADL to be especially appropriate for funds:
a) with a high investor concentration (i.e.: a small number of investors), to address the risk that one or more investors could fully redeem their shares at a short notice; b) with significant levels of subscription and/or redemption activity that could negatively impact the fund’s existing investors (e.g.: smaller funds in terms of NAV could be more impacted by the cost of liquidity caused by large redemptions); c) that invest in less liquid assets (e.g.: high yield bonds, small cap equities); d) where information on trading costs (bid/ask) is generally available (e.g.: funds that invest in assets with market contingent liquidity costs).
50. Fund managers should note that ADL can be activated on an ongoing basis or
dynamically based on pre-defined triggers and thresholds.
51. While the ADL may be implemented consistently during normal market conditions,
fund managers should review its calibration in relation to changing market conditions to ensure its effectiveness in preserving the fund's liquidity.
52. Fund managers should calibrate ADL based on the same factors used to calibrate
swing factors, i.e.: the calibration of ADL should include all estimated explicit and estimated implicit transaction costs, where appropriate and in line with the principles in paragraph 37, and it should be reviewed and, where needed, adjusted to ensure that the levy can evolve on a regular basis in light of the market conditions.
5.4 Guidelines on side pockets
53. Fund managers should consider the activation of side pockets only in exceptional
circumstances and where justified having regard to the interests of its investors. A non-exhaustive list of exceptional circumstances under which a fund manager may consider activating side pockets includes:
a) significant valuation uncertainty and/or illiquidity of a specific portion of the portfolio of the fund for which there is no active market and/or for which trading is prohibited

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu 15 (e.g. due to sanctions) and/or for which fair valuation is temporarily unavailable with the view of segregating it from the rest of the fund (to enable this part to remain open for investors); b) fraud, financial crisis or war affecting a particular sector or region.
54. In the calibration of side pockets, managers should consider:
a) determining the circumstances for activating a side-pocket and defining when such conditions no longer exist; b) setting criteria for assessing and monitoring the conditions that prompted the use of the side-pocket; c) consider the merit of placing some cash to manage the potential liabilities of the side pockets; d) the criteria for reviewing and potentially revising the side-pocket decision and the changing circumstances that would warrant this.

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