10 Things

10 Things…directors should take away from the BNY Mellon pricing glitch

September 21, 2015

By FBV staff

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.

  1. Understand thoroughly how the pricing for funds’ securities works; it’s not enough to just know the pricing source.
  2. Review information about vendor disaster recovery testing, and also review funds’ disaster recovery plans and testing.
  3. Ask vendors about redundant systems (where they’re located, who controls them, and how they’re tested) and restoration procedures.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Ask accounting agents what they would do in the event the automated process breaks, covering the possibilities for manual processing and utilizing alternate procedures.
  9. 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.
  10. 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.

We welcome your ideas for topics and participation in creating future lists of 10 Things. Please contact Founding Editor Hillary Jackson on hillary.jackson@fundboardviews.com



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