In late August, BNY Mellon Corp. experienced a computer glitch that delayed net asset value calculations for more than 1,000 U.S. mutual funds and exchange-traded funds. The issue lasted for days and was caused by a breakdown of the SunGard accounting system on which BNY Mellon relies to generate funds’ NAVs. Industry research groups estimated the event disrupted pricing on nearly 5% of U.S. mutual funds and ETFs, representing more than $400 billion in assets.
- Understand thoroughly how the pricing for funds’ securities works; it’s not enough to just know the pricing source.
- Review information about vendor disaster recovery testing, and also review funds’ disaster recovery plans and testing.
- Ask vendors about redundant systems (where they’re located, who controls them, and how they’re tested) and restoration procedures.
- Make sure there is redundancy in and isolation of backup systems to ensure that if a glitch occurs, a duplicate of the non-corrupted system exists and can be accessed.
- Know what the impact on each fund would be if trades were not processed for two, three or more days; this is likely to vary depending on the type of fund.
- Review funds’ custodial arrangements and determine how shareholders would be made whole if there were an issue with calculating NAVs and funds lost assets as a result.
- Take this opportunity to quiz funds’ senior officers on the protocol that’s in place should there be a disruption in NAV calculation, a cyber attack, or some other unexpected breach or glitch.
- Ask accounting agents what they would do in the event the automated process breaks, covering the possibilities for manual processing and utilizing alternate procedures.
- Become familiar with funds’ disclosure requirements and ensure a plan is in place to notify shareholders as soon as possible should anything happen, so a course of action doesn’t have to be determined in the heat of the moment.
- Read the 1985 Securities and Exchange Commission release on NAV calculation; it’s the best place to get grounded when these types of issues arise.
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