Global regulatory bodies recommend open-ended fund managers charge exit fees
The FSB’s recommendations call for greater clarity on the redemption terms that open-ended funds could offer to investors, based on the liquidity of their holdings.
In two separate consultation reports published today (5 July), the regulatory bodies proposed a set of policy recommendations to address the structural vulnerabilities from liquidity mismatch in open-ended funds and enhance the resilience of non-bank financial intermediation.
The FSB's consultation and IOSCO's guidance on anti-dilution liquidity management tools (LMTs) aim to mitigate the potential first-mover advantage arising from structural liquidity mismatch in open-ended funds by passing on costs of liquidity associated with redemptions and subscriptions to investors.
IOSCO's guidance identifies five anti-dilution liquidity management tools: swing pricing, valuation at bid or ask prices, dual pricing, anti-dilution levies and subscription/ redemption fees.
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Meanwhile, the FSB's recommendations call for greater clarity on the redemption terms that open-ended funds could offer to investors, based on the liquidity of their holdings.
The proposals include a bucketing approach, where open-ended funds would be grouped into different categories depending on the liquidity of their assets, with funds in each category subject to specific expectations in terms of redemptions terms and conditions.
Another proposal would require fund managers to produce clearer public disclosures on the availability and use of liquidity management tools in normal and stressed market conditions to enhance investor awareness on the objectives and operation of anti-dilution LMTs.
The FSB's revised recommendations,
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