Liquidity management tools for open-ended AIFs and UCITS: Commission adopts RTS and ESMA updates its guidelines

I. Executive summary

On 15 April 2025, ESMA published its Final Report on regulatory technical standards ("RTS") on liquidity management tools ("LMTs") under the AIFMD and the UCITS Directive as well as its Final Report on its guidelines on LMTs of UCITS and open-ended AIFs.

Following submission of the RTS to the European Commission, the Commission formally adopted the revised RTS on 17 November 2025.

On 18 December 2025, ESMA published its Report on amended guidelines on LMTs of UCITS and open-ended AIFs, aligning its guidelines with the RTS as adopted by Commission.

The revised versions of the RTS published by the European Commission do not materially diverge from ESMA's draft published in April, the most important changes are set out below. In particular:

• Open-ended AIFs may now use investor-level redemption gates (alone or combined with fund-level gates) to mitigate first-mover advantage; and
• Anti-dilution tools ("ADTs") must always reflect explicit transaction costs, while implicit costs (including market impact) are considered only where appropriate to the investment strategy of the AIF or UCITS concerned and, if used, must be estimated on a best-efforts basis.

The European Council and the European Parliament have three months to analyze the RTS before they are published in the Official Journal in the European Union. The RTS will apply from 16 April 2026, with a one-year transition period for existing funds. ESMA’s amended guidelines apply at the same time, with a 12-months' transition for existing funds.

II. Redemption gates: Investor-level redemption gates for open-ended AIFs

The European Commission has amended the RTS by adding, for open-ended AIFs only, the flexibility to apply redemption gates either at fund level or at investor level, or to use a combination of both.

The Commission introduced the possibility for investor-level gates aiming to "mitigate the first mover advantage that may give rise to investor protection concerns and to account for open-ended AIFs with a limited amount of professional investors". The Commission also highlights that an AIFM should, where the activation threshold is exceeded, be able to decide to activate redemption gates or to continue executing redemption orders, taking into account the liquidity of the open-ended AIF, the market conditions and the best interest of investors.

A fund-level gate shall be based on the total net or gross redemption orders concerning the open-ended AIF received on a given dealing date or over a specific period and shall be expressed as

a) a proportion to the net asset value of the AIF;

b) a monetary value;

c) a percentage of the liquid assets referred in Article 50 (1) UCITS Directive; or

d) a combination of (a), (b) or (c).

An investor-level gate shall be based on the individual gross redemption orders concerning the open-ended AIF submitted by each investor for a given dealing date or over a specified period and shall be expressed as

a) a percentage the investor's holding in the AIF; or

b) a proportion to the net asset value of the AIF.

It should be noted that the investor-level gating is only applicable for open-ended AIFs, not for UCITS which can only apply an activation threshold based on the total net or gross redemption orders received from all investors for a given dealing date or over a specified period and expressed as a proportion of the UCITS' net asset value.

III. ADTs: Explicit and implicit transaction costs

In respect of ADTs (i.e., redemption fees, swing pricing, dual pricing and anti-dilution levy), ESMAs draft RTS had provided that these should include explicit and implicit transaction costs. The European Commission has amended the RTS so that explicit transaction costs shall be taken into account, whereas implicit transaction costs (including any significant market impact of asset purchases or sales) may be taken into account where appropriate to the investment strategy of the fund. Implicit transaction costs shall be estimated on a best efforts basis.

According to the Commission's RTS, explicit transactions costs shall mean costs that are directly borne by the fund for the acquisition or disposal of assets, that are stable in amount and quantifiable in advance (e.g. brokerage fees, trading levies, taxes and settlement fees).

In contrast thereto, the Commission's RTS define implicit transaction costs as costs borne indirectly by the fund upon acquisition or disposal of assets, arising primarily from the bid-ask spread and market impact.

IV. Redemptions in kind

In respect of redemptions in kind, the RTS now acknowledge that the transfer of assets to investors may be indirect via intermediaries.

It should be noted that the European Commission kept ESMA's approach in respect of ETFs (open-ended AIFs and UCITS). Thus, delivery of underlying securities held by or on behalf of an open-ended exchange-traded AIF or an exchange-traded UCITS to an authorized participant or market maker to satisfy redemption orders in the course of regular dealing activities is not treated as activation of a redemption in kind as an LMT.

V. ESMA’s updated guidelines

To align with the Commission-adopted RTS, ESMA amended the draft of its guidelines on LMTs of UCITS and open-ended AIFs.

First, by inserting a new paragraph 27a, ESMA recommends that managers of open-ended AIFs with no retail investors and with a limited number of professional investors consider investor-level redemption gates, alone or combined with fund-level gates, to mitigate first-mover advantage.

Second, in respect of ADTs for open-ended AIFs and UCITS, ESMA adapts its guidelines to the updated RTS by amending paragraph 37 thereof. ESMA confirms that managers should always include explicit transaction costs in anti-dilution mechanisms and consider implicit transaction costs only where appropriate to the investment strategy of the fund and estimated on a best-efforts basis. ESMA clarifies that a "reasonable input for the estimation of the market impact" could be an analysis of previous transactions under similar market conditions.

VI. What should firms do now

Managers should use the transitional period to proactively to reassess their liquidity management framework and operational readiness:

• Select and calibrate tools: choose at least two LMTs in addition to the suspension of subscriptions, repurchases and redemptions and calibrate them to the fund’s liquidity profile, dealing terms, investor base and stress-testing outputs;
• Assess redemption gates: managers of open-ended AIFs with no retail investors and a limited number of professional investors should assess investor-level redemption gates (alone or combined with fund-level redemptions gates);
• Review anti-dilution calibration: start from explicit transaction costs and add implicit transaction costs where appropriate, on a best-efforts basis; review calibrations regularly;
• Check ETF and operational documentation: ensure that the delivery of underlying securities held by an open-ended exchange-traded AIF or an exchange-traded UCITS to an authorised participant or market maker in the context of regular dealing activities is documented as outside LMT activation; and
• Plan implementation: update policies, disclosures, systems and, where necessary, service-provider arrangements.