The Association of the Luxembourg Fund Industry (ALFI) has published the third edition of its Swing Pricing Guidelines.
Swing pricing, which has been applied in Luxembourg for the past 15 to 20 years, has proven to be an efficient mechanism to protect existing shareholders from dilution associated with shareholder purchases and redemptions as well as an additional tool to help funds manage liquidity risks. This technique is therefore perfectly in line with ALFI’s main objectives to protect investors and to foster dedication to professional standards, integrity and quality.
ALFI’s new Swing Pricing Guidelines reaffirm key principles, reflect the evolution in working practice and provide clarification on a number of technical points in areas such as calculation of the swing factor, transparency and fund corporate actions.
The primary purpose of this paper is to provide insight and guidance concerning swing pricing, with consideration as to its advantages, operation and limitations relevant to both those considering adoption of a swing pricing programme and also to established practitioners.
It is not the purpose of the document to consider the pros and cons of swing pricing relative to other methods of dealing with dilution and it does not recommend swing pricing, or any other method, as an industry standard. Equally there is no intention to mandate the compulsory use of swing pricing. Should an asset manager decide to implement swing pricing, the document intends to provide practical guidance relating to the key elements to be considered and to recommend standards of best practice as endorsed by ALFI.
ALFI’s 2015 Swing Pricing Guidelines are available on this link.