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Liquidity Stress Testing

ESMA published in September 2019 the final guidelines for the methodology to apply for the performance of Stress tests on liquidity for UCITS and AIFs.

The objective of such guidelines that takes effect on September 30, 2020 is to better define how Invesment fund manager should carry out the stress testing requirements set out in Directive 2011/61/EU.

The objective of the guidelines is too mitigate liquidity risks, preserve financial stability and promote convergence by establishing consistent, efficient and effective supervisory practises.

EFA offers a complete suite of services to measure and monitor risks in compliance with regulatory requirements including the monitoring and stress testing of liquidity risks aligned with the ESMA Guidelines.

Service description

EFA performs at a frequency[1] agreed with the Client the stress testing of liquidity of fund in accordance with EFA’s risk methodology guide[2] shared with the client.
 

The offer encompass the following services:
 

  • Redemption shock modelling
    • Determination of net flows
    • Distribution of net flows
    • Calibration of the redemption shock  
  • Impact of the shock on the portfolio
    • Liquidity measure using HQLA approach
    • Liquidation strategies
    • Resilience  
  • Second-round effects
    • Price impact
    • Flow-returns relationship


The LST analysis will be provided to the client in a PDF file showing all results and underlying assumptions and data.

 

For more information, click here to contact us

 

[1] LST should be performed at least annually: Quarterly is through the recommended frequency unless a higher (or lower frequency) is justified depending on the fund’s nature, scale, complexity, risk profile and lifecycle. The ground for decision on the most appropriate frequency should be described in the LST policy.

[2] The methodology guide is made available to the client upon subscription to the service.