20 April 2020
Swing Pricing
Swing Pricing for Luxembourg Funds due to Covid-19
Manager, don’t let redemption paid before reading this.
As of 20th March, the CSSF has updated its information regarding swing pricing and dilution levy mechanisms by Luxembourg funds further to the questions received from industry participants in the context of the financial market developments around COVID-19.
The updated implies the that the Luxembourg Funds can increase the swing factor/dilution levy up to the maximum level laid down in their issuance documentation without prior notification to the CSSF.
A swing factor aims to compensate the fund for the amount of charges or costs that it incurs due to (massive) redemption requests received from investors.
For example the fund manager can apply a anti dilution fees equivalent to the costs of selling the underlying assets to create the liquidity in the fund to proceed with the reimbursement of investors. This compensate the loss incurred by the fund (and the remaining investors) due to the disposal of such assets.
The CSSF clarifies that, when the prospectus formally provides for such possibility, the manager may increase the applied swing pricing factor/dilution levy beyond the maximum percentage laid down in the issuance documentaiton on a temporary basis and in accordance with the provisions of the prospectus, provided that such a decision:
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is duly justified;
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is the result of a robust internal governance process and is based on a robust methodology (including market/transaction data based analysis) that provides for an accurate NAV which is representative of prevailing market conditions;
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takes into account the best interest of the investors; and
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is communicated to the relevant fund' s current and new investors through the usual communication channels as laid down in its documentaiton.
The CSSF further clarifies that, given the current exceptional market circumstances involved by the COVID-19, the above position is also applicable, on a temporary basis, in the case where such documentation does not formally provide for such possibility to apply the swing pricing factor/dilution levy beyond the maximum level laid down in the documentation. In this case, in addition to the above mentioned conditions, the fund’s documentaiton will have to be updated at the earliest convenience in order to formally provide for such a possibility to go beyond the maximum level under certain predefined conditions.
The CSSF further clarifies that, given the current exceptional market circumstances involved by the COVID-19, the above position is also applicable, on a temporary basis, in the case where the prospectus does not formally provide for such possibility to apply the swing pricing factor/dilution levy beyond the maximum level laid down in the prospectus.
Please contact the Fund Department to discuss this matter in details if redemptions may affect negatively the NAV of your Fund
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