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Particularities related to non-UCITS or ETF-structures are not addressed in this document.
This paper describes the challenges in capturing and managing liquidity risk in an appropriate manner, provides some insights into current trends, and highlights their benefits and drawbacks.
Liquidity risk for UCITS should be regarded in a holistic manner as it often interacts with other types of risk, with regulatory requirements as well as procedures and control activities. As it is paramount to understand liquidity risk and its complexity, the different aspects of liquidity risk are explained herein and a framework to manage liquidity risk is provided.
The framework is intended to provide cornerstones for consideration in respect of a particular fund's own liquidity risk management. The framework generally comprises funding risk, market liquidity risk, reconciliation to other risk types and regulatory requirements, operational issues and integration into current global risk management frameworks. However, as is the case with any framework, it should be tailored and specified to particular needs and circumstances. For some aspects of the framework such as funding risk and market liquidity risk, more technical details are provided in a separate section at the end of the document. They should be understood as ideas and general thoughts which might be useful to consider by an investment fund; they are not intended to provide or suggest industry standards or any other kind of authoritative guidance.