Together with the German banking industry, we have published a practical guidance on the implementation of redemption restrictions (gating) for open-ended securities funds (especially UCITS). The guidance takes into account the entire process chain - from the management company, to the depositary, to the custodians. The ‘pro-rata solution with expiry of the residual order’ developed for the German market is also permissible in France. We consider this solution to be forward-looking, even though the Luxembourg supervisory authority has not yet recognized this approach. In an intensive exchange with all parties involved, we have succeeded in setting up a pragmatic and, for the first time in the EU, automated process for the mass business of mutual funds.
Germany had already introduced holding and notice periods for open-end real estate funds years ago, which have proven to be tools for liquidity management. Alongside swing pricing and notice periods, redemption restrictions complement the existing toolbox for open-end securities funds. They serve to reduce systemic risks and protect investors, even though their rights may exceptionally be restricted in difficult market situations. Finally, the hardest tool of all, fund closure, must be prevented. Institutional investors and fund-of-funds managers can also benefit from this.