By Kirsten Grind And Tim Puko
Bank of New York Mellon Corp. warned at least one money manager
that it might not be able to solve pricing problems caused by a
computer glitch before markets open Monday, the latest delay in an
unprecedented outage that has frustrated investors and prevented
nearly 50 fund companies from providing accurate values for their
holdings.
More than 100 executives at the New York company worked through
the weekend to correct the glitch and provide up-to-date pricing
for hundreds of mutual funds and exchange-traded funds that have
lacked accurate asset value figures since last Monday, said a
person familiar with the firm.
By midday Sunday, BNY Mellon had calculated the net asset values
for all funds through last Wednesday, with the exception of one
company, the bank said in a statement Sunday afternoon. BNY didn't
name the company.
The bank was still working through a backlog from Thursday and
Friday, and it was unclear whether it would be able to complete the
task by the time the market opens Monday, said the person.
The bank, fund companies, regulators and exchanges hoped to
start the week with the issue resolved, this person said.
The outage has roiled money-management firms that strive to
provide investors with accurate pricing for their funds. In its
first attempt at quantifying the outage, BNY Mellon said over the
weekend that 20 mutual-fund companies and 26 providers of
exchange-traded funds had been affected.
Setbacks in resolving the issue have put BNY Mellon's reputation
on the line, said analysts, likely prompting some clients to at
least consider whether to move their business to a rival
custodian.
For BNY Mellon, "this isn't life threatening but it's a black
eye," said CLSA banking analyst Mike Mayo. "The company is a
plumber to the banking industry."
Finding a solution is "overdue" for the bank, said Todd
Rosenbluth, director of ETF and mutual-fund research at S&P
Capital IQ. He called the business of providing accounting for fund
firms a competitive one and said BNY's ability to help clients
price assets correctly "is paramount to maintaining their
relationships."
Fund companies affected include Goldman Sachs Group Inc.,
Guggenheim Investments, Prudential Investments, Federated Investors
and Invesco PowerShares. All have had to rely on backup methods for
calculating asset values, and are now reconciling the values that
they published last week with the new data provided by BNY
Mellon.
One money-management firm complained that BNY Mellon has
frequently provided status updates while leaving open the most
important question for investors, whether the overhaul will be
complete and the system functional by Monday.
On Sunday, Federated said it "has continued to work through
issues over the weekend and we expect to have an update for our
customers in the morning."
Prudential said it had 38 retail funds and two closed-end funds
affected out of about 60 at the firm. A Guggenheim representative
said the company was "optimistic that NAV pricing will return to a
regular schedule very soon." Invesco declined to comment, and
Goldman Sachs didn't return phone calls seeking comment.
The problem stemmed from a SunGard Data Systems Inc. accounting
system used by BNY Mellon that became "corrupted" last weekend
after an upgrade, SunGard said in a statement Thursday. A SunGard
spokesman didn't respond to a request for comment Sunday.
BNY Mellon in a statement Sunday said it is also "using
alternative methods to address the backlog from SunGard's system
failures this week."
"SunGard's system is restored, and we have made significant
progress over the weekend to process the backlog," a BNY Mellon
spokesman said.
BNY Mellon, the largest fund custodian in the world by assets,
provides accounting services for money managers. Those services
include calculating the price of a fund's securities each day.
Pricing is crucial for money managers, which are obliged to provide
investors with an accurate price for securities in their funds.
The problems have made it much harder for investors in mutual
funds and exchange-traded funds who rely on accurate pricing to
trade in and out of funds.
Last Monday, the pricing system went down. It went back online
midday Wednesday, and the system was working through a backlog
Thursday afternoon, the bank said.
By Thursday afternoon, multiple fund companies were reporting
discrepancies of 1% or more in the prices they had calculated
earlier in the week compared with the new prices from BNY
Mellon.
Invesco PowerShares, a large provider of ETFs, revised the net
asset value of 14 funds, according to a news release. Securities
and Exchange Commission officials reviewing the pricing glitch are
aware of only a few instances of price discrepancies greater than
1%, according to people familiar with the agency's review of the
matter. They cautioned that the figures are preliminary.
In its first public statement on the matter Thursday afternoon,
SunGard said that the malfunction appears to have been caused by an
operating system change performed on Aug. 22. Although the change
had been tested by SunGard, the platform "became corrupted," when
applied to SunGard's InvestOne platform used by BNY Mellon, the
company said. The backup system was concurrently corrupted.
NYSE Group, a unit of Intercontinental Exchange Inc., declined
to comment, as did Nasdaq OMX Group Inc. and BATS Global Markets
Inc.
Bradley Hope contributed to this article.
Write to Kirsten Grind at kirsten.grind@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 30, 2015 19:21 ET (23:21 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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