Computer glitch wreaks havoc on mutual fund industry

Bank of New York Mellon Corp. is working to fix a computer glitch which prevented hundreds of investors from knowing the values of their holdings. The episode coincides with a turbulent week on the stock market and has severely undermined the trustworthiness of the world’s largest custody bank.⁽¹⁾

The bank reports that an accounting system used to calculate the prices of its clients’ mutual funds stopped working over the weekend. The glitch caused BNY Mellon to resort to an alternative calculating method, which created a backlog the company is still trying to correct.

The glitch occurred on a system called InvestOne, which is run by the financial software provider SunGard. InvestOne is responsible for managing approximately $28 trillion in assets. The system was not fully functional on Tuesday and Wednesday, which left BYN Mellon with a backlog on funds to price.⁽²⁾

“No one here can understand why it’s not up and running yet,” an executive at a firm told sources.⁽²⁾

Several funds run by Federated Investors were impacted by the glitch. Fund-research firm Morningstar Inc. reports that an estimated 796 funds were unaccounted for in their net value assets Wednesday. Guggenheim Investments and First Trust Advisors were affected by the glitch too.^(1,2)

The glitch could not have happened at a worst time, shortly following China’s stock market meltdown Monday. The firm claims that the two events weren’t related. Nevertheless, the incident has investors chewing their finger nails, as they were already worried that the U.S. Federal Reserve would raise interest rates this year.

BYN Mellon is required by a 1940 law to provide accurate fund values daily. It’s unclear what legal consequences the glitch may cause. The greatest struggle for the bank, however, will be re-establishing trust with their clients.

Sources include:

(1) WSJ.com

(2) Reuters.com