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Alternative Market Briefing

IOSCO consults on principles of liquidity risk management for Collective Investment Schemes

Wednesday, March 28, 2012

Beverly Chandler, Opalesque London: The International Organization of Securities Commission (IOSCO)’s Technical Committee has published a consultation report entitled Principles of Liquidity Risk Management for Collective Investment Schemes. The report outlines a set of principles against which both the industry and regulators can assess the quality of regulation and industry practices relating to liquidity risk management for collective investment schemes (CIS). IOSCO invites comments on its report before 12th July 2012.

In the accompanying notes on the report, IOSCO said: "Since the outbreak of the global financial crisis, the issue of liquidity has been a major concern for regulators, although the discussions on regulatory reform have focused more on the importance of liquidity in the banking sector rather than in other sectors".

IOSCO believes that good liquidity risk management is a key feature of the correct operation of a CIS, as the right to redeem units/shares is a defining characteristic of open-ended schemes. "Liquidity risk management is complex and a CIS may experience liquidity issues as, for example, when the market in which it is invested closes unexpectedly. In exceptional circumstances, a liquidity issue could lead to a CIS temporarily suspending all investor redemptions" it says.

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