Average daily trading volume and bid-ask spread are key indicators for assessing equity liquidity. Trading volume helps estimate the liquidation time, while the bid-ask spread measures the gap between buy and sell prices, which widens for less liquid securities, increasing exit costs. These concepts are essential for understanding how to assess asset liquidity.

ESMA Guidelines 34-39-897 recommend that liquidity stress tests be conducted quarterly. This frequency allows for regular and proactive assessment of liquidity risk, which is essential for anticipating critical situations.

The MMF Regulation 2017/1131 sets specific constraints for money market funds. Standard funds must have a WAL of 12 months or less, while short-term funds must have a WAL of 120 days or less. These rules are essential for managing liquidity risk in money market funds.

The AMF's May 2021 review highlights the importance of a proactive approach towards unitholders during liquidity stress. This includes transparent communication and preventive measures to manage risks. A passive approach could worsen the situation.

Liquidity stress tests cover three dimensions: asset-side stress (reduction in market liquidity), liability-side stress (abnormal redemption requests), and the combination of both scenarios. These tests are crucial for identifying situations where liquidity risk could materialise.

Liquidity stress tests are mandatory under AMF Position DOC-2020-08 and ESMA Guidelines 34-39-897. They must be conducted at least annually (quarterly according to ESMA recommendations) and on an ad hoc basis when a material risk is identified. This requirement underscores the importance of regular and proactive liquidity risk assessment.

Liquidity risk is defined by Article 321-76 of the AMF General Regulation as the risk that a position cannot be sold, liquidated or closed at a limited cost within a sufficiently short timeframe, compromising the UCITS' ability to honour redemption requests. This definition is fundamental for understanding the challenges of liquidity risk management.

Article 321-76 of the AMF General Regulation defines liquidity risk as the risk that a position cannot be sold, liquidated or closed at a limited cost within a sufficiently short timeframe, compromising the UCITS' ability to honour redemption requests. This definition is crucial for understanding the importance of pre-investment assessment.