The liquidity of mutual funds has been one of the main concerns of regulators, both the CNMV and Esma, as a result of the various episodes of volatility in the markets in recent years. Not surprisingly, for savers the possibility of undoing their positions in a certain collective investment product within a reasonable period of time represents an element of security.
The regulations already establish various procedures and deadlines by which firms must act to assess and manage the liquidity of their funds when facing possible repayments. Last year was a good example of this, when many managers applied the ‘swing price’ to offset the costs of net money flows.
To unify the regulations and the recommendations that the regulators have made, the CNMV has put the Technical Guide on the management and control of the liquidity of Collective Investment Institutions (IIC) for public consultation, to which comments may be sent up to next October 15.
From the agency they explain that its publication at this time does not imply that they are much more concerned now about this matter than before, since it was part of their action program for this year.
The guide does not have a regulatory imperative, but “entities that deviate from these criteria must justify their actions and be able to prove that they adequately comply with legal obligations,” the regulator underlines.
Among the issues included in the text is the need to carry out “recurring controls to guarantee an adequate alignment between the liquidity profile of the assets and the liabilities of each IIC”, which allows a proportional sale of the most liquid assets and the less liquid in each collective investment institution, as well as establishing stress scenarios in the markets and how they would affect the vehicles.
In addition, managers must have various tools to manage liquidity, such as notice periods for redemptions or representative asset valuation models, apart from applying antidilutive mechanisms, such as the ‘swing price’.