Fallout from SunGard and BNY Mellon Software Glitch Still Ongoing

By

Sungard
Daily News
Read more about SunGard, which is being acquired by Fidelity Information Systems, here.

After a frantic end to August in the wake of software problems that caused more than 1,200 mutual funds and exchange traded funds to have unconfirmed net asset values (NAV’s) for over a week. Experts from both Wayne based SunGard Financial Systems Inc. and Bank of New York Mellon Corp. are looking more deeply into the issues surrounding the problem to prevent it happening again.

SunGard’s InvestOne valuation program malfunctioned on August 24, followed by what might be considered the worst case scenario, a failure of a backup system, leaving BNY Mellon without the ability to provide actual NAV’s for their client’s exchange-traded funds and mutual funds, among them Federated Investors, Prudential Financial and Guggenheim Partners.

Even though everything is working properly now, there is still some skepticism that the net asset values recalculated after the issue are entirely accurate, particularly in the case where assets were withdrawn by clients before the entire reconstruction of the system had been completed.

While SunGard took responsibility for the software problems which has left it having to completely rebuild its system, the net of blame is now spreading wider as bankers and investors wonder why other backups in place at BNY Mellon were not as effective as they were supposed to be.

One of the key issues is the custodial arrangements for all the securities held by funds. As a custodian, BNY Mellon is essentially the ‘vault’ that is paid to hold and track all transactions with securities under its purview and is responsible for the end of day valuation and pricing of all items being held.

“Ensuring proper technology implementation, backup and mirroring of systems is critical” said Edwina Easton, Chicago-based director-North America at Amaces, a custodial consultant to institutional investors. “However, this goes further than simply understanding the “now’ impact. An institutional client should understand how they are set up inside of the custodian’s systems.”

This breakdown in custodial services is having wider reaching consequences. For example, although not under contract with BNY Mellon and unaffected by the valuation issue, it led officials at the $15.7 billion Illinois State Board of Investment, Chicago, to look at its relationships with Northern Trust, its DC custodian, and State Street, custodian for the three defined benefit plans it oversees.

In the end this issue may have highlighted some flaws in the current methods used by custodians to ensure that their records are secure and accurate.

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