German fund industry sets standards for gating

Together with Deutsche Kreditwirtschaft, we have published a guideline and annex on the practical implementation of redemption restrictions (gating) for open-ended securities funds (especially UCITS). The guidelines take into account the entire process chain - from the asset management company to the depositary and the custodians. The "pro rata solution with expiry of the residual order" developed for the German market is also permitted in France. We regard this solution as forward-looking, even if the Luxembourg supervisory authority does not yet recognize 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-ended real estate funds years ago, which have proven their worth as liquidity management tools. In addition to swing pricing and redemption periods, redemption restrictions supplement the existing toolbox for open-ended securities funds. They serve to reduce systemic risks and protect investors, even if their rights may be restricted in exceptional cases in difficult market situations. Ultimately, the aim is to prevent the hardest of all tools, namely fund closure. Institutional investors and fund of fund managers can also benefit from this.