Use of liquidity management tools

Liquidity management tools are measures designed to enable a KVG to manage its liquidity in a fund.

These measures are

  • Swing pricing    
  • Redemption periods and
  • Redemption restrictions.

These tools can thus be used by the KVG at the fund level and, if relevant, must be taken into account accordingly by the custodians during fund processing.

ESMA published its guidelines for liquidity stress tests of UCITS and AIF funds in September 2019. Subsequently, on February 13, 2020, the German Bundestag passed the Act on the "Introduction of Special Provisions for the Recovery and Resolution of Central Counterparties and for the Adaptation of the Securities Trading Act to the Information and Evidence Requirements Pursuant to Articles 4a and 10 of Regulation (EU) No. 648/2012". In the course of this, the KAGB (German Investment Code) was also amended and additional instruments for liquidity management of investment funds were permitted.

These instruments are:

  • Swing pricing 
  • Redemption periods and
  • Redemption restrictions.

Before a KVG can apply the instrument of redemption restriction for a fund, binding rules on this must be made in the investment conditions. By checking these rules on a daily basis, a KVG can decide to apply the instrument of redemption restriction. If the criteria are met and the KVG decides to apply it, a quota is determined that limits the redemption of fund units. This limitation may last for a maximum of 15 business days. 

For example, if a customer has placed a sell order for 100 units and the KVG decides to apply the redemption restriction for this fund with a quota of 30%, then only 30 fund units will be redeemed by the KVG. The other 70 units will not be executed and the remaining part of the order will expire without replacement.

Funds with a German ISIN may include redemption restrictions with quoted execution and expiration of the remaining order in their investment conditions. Foreign funds may include other restrictions in their investment conditions

Redemption periods are a rigid instrument which ensures the redemption of fund units by means of an irrevocable declaration of redemption to the KVG subject to a redemption period. For UCITS and mixed investment funds, the maximum redemption period is 1 month; for other investment funds, longer periods are possible.

This means that in the case of a sell order and, for example, an applicable redemption period of 10 days for the fund, the selling custody account client will only have the order executed after 10 days.

The application of this measure must be bindingly regulated by the KVG in the investment conditions.


Swing pricing has no impact on the settlement with the custodians. Swing pricing provides the KVG with a tool to adjust the net asset value (NAV).

Redemption deadlines: This tool must be specifically named in the investment conditions of a fund. It therefore always applies and is applied to every sell order. In principle, the customer should familiarize himself with the investment conditions/sales prospectus before purchasing a fund for the first time.

Redemption restriction: The possible use and type of application of this instrument must be specifically stated in the investment conditions of the fund. The actual use of the instrument is decided by the KVG in accordance with the established rules only after the closing of the order. There is thus no way for the customer to know in advance whether a redemption restriction will be applied. In this case of partial execution, Fondsdepot Bank will display a corresponding note to the customer on the securities account statement. Only in the case of a fund that has already been applying the redemption restriction for a few days (maximum 15 working days) would this be recognizable in advance. To do this, the customer must check the current situation regarding the fund before placing the order. Information on the activation of a redemption restriction can be obtained from the websites of the respective KVG to a reasonable extent.

It is not legally necessary for the custodian to inform the customer about the fund-specific inclusion of liquidity management tools in the investment conditions.

If a redemption restriction was applied by the German IMI, only the part of the quota specified by the German IMI will be executed. The rest of the order expires without replacement. If you wish to continue selling this part, you must place a new order. If the redemption restriction continues to apply on the next day, the described scenario would repeat itself. Alternatively, one can wait until the redemption restriction is no longer applied. Then the entire sell order would be executed. Redemption restrictions may be applied for a maximum of 15 consecutive business days.

Before changing a fund in the portfolio or a planned rebalancing, information should be obtained about possible redemption restrictions.
If there is a redemption restriction, the order should not be submitted, as the order will only be settled by the KVG with the applied quota and the actual structure of a securities account does not correspond to the target structure of the portfolio.

Unable to find answers to your questions? Simply send an e-mail to info(at)