Liquidity stress testing that finds the day each fund breaks and shows why, then waits for your approval
Each fund's breach day found and evidenced, and the quarterly pack signed in a day.
See one case, screen by screen ↓Liquidity stress testing checks whether a fund can meet redemptions under severe but plausible stress without harming the investors who stay. It tests the asset side (how fast and at what cost holdings can be sold) and the liability side (redemptions, margin calls and other cash calls). Liquidity Stress Testing gives the risk team seven agents. They design scenarios from each fund's own holders, find the day each fund breaches, check the rules and calibrate the liquidity tools, while a risk manager approves and the CRO signs.
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ESMA's liquidity stress testing guidelines expect every UCITS and AIF to be tested on both sides of the balance sheet, at least annually and preferably quarterly. US funds run Rule 22e-4 liquidity risk management programs with a highly liquid investment minimum and a 15% illiquid cap. From April 16, 2026, each EU open-ended fund must also select at least two liquidity management tools and show how it would activate them. At many fund groups the quarter is still done in spreadsheets: positions from the order management system, the register from the transfer agent, a market liquidity feed and the prospectus terms, stitched together fund by fund and scenario by scenario, then copied into a committee pack.
The risk sits in the assumptions nobody had time to challenge. Redemption risk is a generic percentage, not the fund's own holders. The most liquid assets are assumed to be sold first, which the FCA said creates "a false sense of security". Margin calls in a rates shock are left out, swing factors are set once and rarely recalibrated, and the record of who approved which scenario sits in email.
Estimated split for one quarterly cycle across a fund range, by hand and with the solution.
Seven agents design scenarios, drain each fund day by day and check the rules; the risk manager approves and the CRO signs.
Quillfield Capital tests 90 open-ended funds, about $412 billion, every quarter. On Tuesday, October 20, 2026, the Q3 results are in and approvals are due on Friday, October 30. Here is one fund, Quillfield Global Strategic Bond Fund, a $4,819.3 million UCITS sub-fund in Ireland, screen by screen in the working solution.
Amara's Today screen shows 90 of 90 funds tested in 1,452 runs, 3 breaching under stress (Global Strategic Bond, EM Local Debt and European Real Estate Income), 9 on watch and 61 of 90 signed off. Under "Needs you", six items in order. Beside them, each agent explains its night in its own words with its sources, and she can ask them anything about the cycle.
Checker agent, 3:02 a.m.: “I challenged the first pass for Global Strategic Bond: it kept gilts highly liquid… Highly liquid assets now run out on day 4, not day 5.”
The Scenario agent read the transfer agent's register and weekly flows since 2011. The top three holders own 23.6%, and Northbrook Pension Scheme redeemed 38% of its holding in four days in October 2022. It proposed S-07, "Top 3 holders exit plus a gilt shock": the three leave over 5 dealing days, other holders redeem 1.2% of NAV a day (the 99th percentile), gilt yields rise 150 bp over 3 days and gilt bid-ask widens four times. Its five days add up to 30.2% of NAV, against a worst week since 2011 of 10.2%.
“Results under S-07 stay provisional until a risk manager approves it.”
On approval, results on 90 funds stop being provisional: under S-07, 1 breach, Global Strategic Bond, and 5 on watch. The reason is required and goes in the audit trail. She picks "Plausible and severe: grounded in the register and 2022 history" and signs as herself. Signed in as the analyst, Daniel would find the button locked.
“Reason (required, kept in the audit trail)”
The fund's liquidity tiers drain from the top as redemptions and margin calls are paid. Requests run 3.2%, 4.1%, 5.6%, 6.9% and 10.4% of NAV on days 1 to 5. Variation margin takes 2.9%, 2.4% and 1.2% on days 1 to 3. The fund falls below the 5% liquidity floor on day 3, and on day 4 its highly liquid assets are gone: $241M (5.0% of NAV) is sold from investment-grade credit at a stressed cost. On day 5, requests of 10.4% pass the 10% gate in the prospectus (§7.4, p. 47), and $19M is deferred to day 6. The view opens in waterfall order, with a switch to the policy's pro-rata slice.
The breach day is circled on the tank. A day scrubber moves the water line from D0 to D10.
Across 412 positions, the whole fund takes 4.3 days to liquidate in normal markets and 11.6 days under stress, at a cost of 0.31% rising to 1.74%. 37 positions are flagged as priced on proxy data. The Checker agent compares both sale orders. Under the policy's pro-rata slice, the breach day stays day 4 and holders who stay keep 21% of what remains in highly liquid assets. A waterfall keeps exit costs at 0.94% but leaves them none.
The Checker agent never settles a disagreement itself. Below 85% confidence, a person decides.
Tobias thinks he can sell gilts in a day, even in 2022. Amara puts his question to the agents beside the tank. The Liquidation agent answers at 88% confidence. In October 2022 sterling gilt volumes held up, but bid-ask on long gilts widened four times. Selling the 2049 and 2051 gilts in one day at 20% of volume would cost about 1.9% on those lines, and even at 40% of volume the breach only moves to day 5. Tobias can read and comment on his funds, but he cannot approve them.
“I kept them in moderately liquid; the risk manager decides.”
The fund uses two liquidity management tools: swing pricing as its anti-dilution tool and a 10% redemption gate. The Liquidity Tools agent adds up the stressed costs: a dealing spread of 1.12%, market impact of 0.56% at 20% of volume, and 0.06% of duties and fees, 1.74% in all. It rounds up to 1.80%, inside the supplement's 2.00% maximum (p. 14). Over days 1 to 5 the fund pays out $1,436M. At today's 0.45% factor, holders who stay would bear about $19.4M of dealing costs.
Maker-checker: Daniel Reyes prepared it at 8:05 a.m.; a different person must approve it before it goes to the fund administrator.
The same scenario runs on the three funds that share the strategy. The UCITS breaches: highly liquid assets are exhausted on day 4, and the Central Bank of Ireland must be told of a material liquidity risk. Strategic Income Fund, a US mutual fund, dips below its 25% highly liquid minimum on days 3 to 5 (low 18.6%). That means a board report at the next meeting but no Form N-RN, because the shortfall lasts 3 days, under 7. Strategic Credit Fund, a Luxembourg AIF with 30 days' notice, passes. Every cell cites its rule and the fund document.
The Pack agent drafted the Q3 Risk Committee pack for November 4: 64 pages in ten sections, 214 figures each linked to its run. Daniel Reyes prepared it. Amara reviews it once the three breach conclusions are approved, and Helen Marsh, Chief Risk Officer, signs it. The notice to the Central Bank of Ireland follows the same pattern: the Pack agent drafts it, Ravi Iyer in compliance prepares it and Helen approves it.
“Prepared, reviewed and signed by three different people”
The audit trail lists every agent step with its version, every approval with its reason and every override with its evidence. That includes Amara's approval of S-07, the swing factor calculation and Mei Lin Tan's requested override of Pampas Agro 2031, from 31 stressed days to 24 after a dealer bid. It is kept for 7 years. One click exports the evidence pack for an auditor or the regulator, and the export is itself logged.
“Who did what, when, why and on which evidence · every agent step with its version · kept 7 years”
The same breach, seen by four of the people who carry it: in their own words, and what their quarter looks like now.
Seven agents design scenarios, drain each fund day by day and check the rules; the risk manager approves and the CRO signs.
Designs redemption scenarios from the fund's flow history, investor types and concentration and from market events. It runs reverse stress tests too, proposing each scenario with its reasons and sources.
Computes days to liquidate and cost by tier and position, in normal and stressed markets. It uses the policy's sale order, from order management positions, two market liquidity feeds and the official NAV.
Adds the liability side to each run: margin calls, eligible collateral, the shared credit facility and settlement mismatches.
Recomputes the other agents' work and challenges their assumptions, the sale order among them. It checks each result against UCITS, ESMA's liquidity stress testing and liquidity management tool guidelines, AIFMD, Rule 22e-4 and the prospectus.
Calibrates swing factors, gates, anti-dilution levies and notice periods from stressed costs, and tests when each would activate.
Drafts the Risk Committee pack, the board summary and regulator notices, with every figure linked to its run.
Between quarters, watches register concentration, flows, data quality and use of the credit facility every morning. When a trigger fires, it starts an ad hoc test.
Prepare, approve, sign. The agents propose; a named person decides.
Beside every drain-down and on the Today screen, you can question the result or ask for a variant. The agents answer with their sources, and nothing they draft counts until a person approves it.
Why does Global Strategic Bond breach on day 4?
Gilts (14.2% of NAV) stop being highly liquid when bid-ask widens four times, as in 2022. Margin calls take 6.5% in three days, and the top three holders (23.6%) leave. The 21.3% buffer is used up on day 4, and the 10% gate applies on day 5.
What if Northbrook leaves over ten days?
Daily requests would peak at 5.8% instead of 10.4%. The gate would not apply, and highly liquid assets would run out on day 6 instead of day 4. Saved as variant S-07b for an analyst to check and a risk manager to approve.
Can we sell gilts faster?
In October 2022, sterling gilt volumes held up but bid-ask on long gilts widened four times. Selling the 2049 and 2051 gilts in one day at 20% of volume would cost about 1.9% on those lines, and even at 40% of volume the breach moves only to day 5. They stay in moderately liquid; the risk manager decides.
Which funds need a regulator notice?
One: Global Strategic Bond, a material liquidity risk notice to the Central Bank of Ireland. Strategic Income Fund needs a board report but no Form N-RN: its shortfall lasts 3 days, under 7.
13 screens from the working solution, on its sample data. Pick one to see it large.
The liquidity stress testing methodology (frequency, floors, sale order and tool thresholds) comes from the firm's LST and LMT policies and the fund documents. A change is proposed, needs a second approver and is logged.
| Setting | Default | Choose from |
|---|---|---|
| Stress test frequency | Quarterly; monthly for watch-list funds | From the LST policy. A fund joins the watch list when an early-warning trigger fires, for example net outflows over 3% in three days |
| Cycle deadline | 20 business days after quarter end | Analysts and risk managers get a digest 3 days before; the CRO is told on the deadline |
| Liquidity floor | 5% of NAV in highly liquid assets | Can differ by fund group. A pending change raises it to 6% for EM funds, waiting for its second approver |
| Primary sale order | Pro-rata slice; waterfall shown for comparison | Both orders are computed on every run, so the result is never flattered by selling the most liquid assets first |
| Participation rate | 20% of daily volume | Drives days to liquidate and market impact by position |
| Swing threshold (Global Strategic Bond) | Net flow over 2.0% of NAV | Per fund, from its supplement; factors stay inside the prospectus maximum |
| Gate (ICAV funds) | 10% of NAV on one dealing day | From the prospectus (§7.4, p. 47) |
| Highly liquid minimum (US funds) | Per fund, set by the board (e.g. 25%) | A shortfall over seven days is flagged for Form N-RN; a shorter one goes to the board |
| Agent confidence threshold | Below 85% a person decides | Raised from 80% to 85% on October 16, approved by the CRO |
Every figure is labelled: a target the solution is built to, an estimate, a typical published result, or a proven one.
“demo” = seen in the working solution, on its sample fund data · “target” = the design goal, measured in the live solution · “estimated” = our estimate · “typical” = published figures (SEC estimates of the cost of Rule 22e-4 liquidity programs, about $1.4 billion to set up and $240 million a year; Bank of England analysis of the 2022 gilt market crisis; ESMA Guidelines on liquidity stress testing in UCITS and AIFs, ESMA34-39-897; ESMA Guidelines on liquidity management tools, applying April 16, 2026; FCA multi-firm review of liquidity management, July 2023). Quillfield Capital and the people, funds, investors and identifiers named on this page are fictional: characters and sample data in the working solution.
Liquidity stress testing checks whether a fund can meet redemptions under severe but plausible stress without harming the investors who stay. It tests the asset side (how fast and at what cost holdings can be sold) and the liability side (redemptions, margin calls and other cash calls). Liquidity Stress Testing gives the risk team seven agents. They design scenarios from each fund's own holders, find the day each fund breaches, check the rules and calibrate the liquidity tools, while a risk manager approves and the CRO signs.
ESMA's guidelines, which apply from September 30, 2020, expect at least an annual test and recommend a quarterly one. The tests cover assets and liabilities, investor type and concentration, and historical and hypothetical scenarios. In the working solution the policy is quarterly for every fund and monthly for funds on the watch list, with results approved within 20 business days of quarter end.
They are the tools a fund can use in stress, among them redemption gates, extended notice periods, redemption fees, swing pricing, dual pricing, anti-dilution levies and redemptions in kind. From April 16, 2026, each EU open-ended fund must select at least two and set activation policies; funds that existed before then have until April 16, 2027. The rule check shows each fund's selection and whether one is an anti-dilution tool, and the Liquidity Tools agent tests when each would activate.
From the costs the fund would pay to meet stressed outflows: the dealing spread, market impact at the participation rate, and duties and fees. In the demo these add up to 1.12% + 0.56% + 0.06% = 1.74%, rounded up to 1.80%, inside the supplement's 2.00% maximum. An analyst prepares the change and a risk manager approves it before it goes to the fund administrator.
Position by position, from the order management system's holdings and two market liquidity feeds, at a set share of daily volume (20% by default), in normal and stressed markets. The results are grouped by liquidity tier. The demo fund takes 4.3 days to liquidate normally and 11.6 days under stress, at a cost of 0.31% rising to 1.74%. Positions priced on proxy data are flagged, and any override needs a reason.
It runs the stress testing side of a Rule 22e-4 liquidity risk management program. The same scenario runs against each US fund's highly liquid investment minimum and the 15% illiquid limit. In the demo, a shortfall that lasts 3 days goes to the fund board at its next meeting without a Form N-RN. A shortfall over seven days is flagged for one.
Yes. The agents propose and explain; they never activate a liquidity tool, change a factor, send a notice or sign. A scenario counts only after a risk manager approves it with a reason. The CRO signs the pack after a different person prepared it and another reviewed it, and below 85% confidence the decision goes to a person.
The Agentic Solution Engine builds and deploys it from your requirements and documents: your LST and LMT policies, prospectuses and a past quarter of positions and register data. It goes live once every quality gate has passed. We will walk you through it on your own funds first.
Every holding bucketed monthly, every override explained, no filing trigger missed.
1-min demoDerivatives Risk Management ProgramEvery daily VaR test explained in plain words, every escalation signed, no late N-RN.
1-min demoStress Testing and Scenario AnalysisNew scenarios drafted in hours, every portfolio run weekly, every loss explained.
1-min demoWe'll run Liquidity Stress Testing on a past quarter of your own positions, register and fund documents.