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Funds scramble to assess computer glitch

Investment firms and regulators are scrambling to find out how many mutual funds and exchange traded funds may have reported inaccurate prices during the market turmoil of recent days, as a result of a computer glitch that affected one of the largest custodian banks.

Bank of New York Mellon, whose computer systems are used to calculate the net asset values, or NAVs, of many funds, has been suffering problems since the start of the week because of a failed software upgrade by one of its suppliers.

The resulting confusion could take many days to clear up, said people at several of the companies affected, and it was unclear whether investors may have ended up buying or selling funds at inaccurate prices during the high-volume trading of the past few days.

The Bank of New York Mellon on Wall Street, New York.
Scott Mlyn | CNBC
The Bank of New York Mellon on Wall Street, New York.

One of the leading exchange-traded fund providers, Invesco PowerShares, warned on Wednesday that its family of funds may not be able to disseminate accurate price information as a result of problems at BNY Mellon. Trading is currently based on the prior day's NAV, Invesco said.

Other firms to have been affected include Prudential Financial, Federated Investors and Guggenheim Partners, said people familiar with the firms or public statements.

One firm, First Trust Advisors, said it had published inaccurate NAV figures for its ETFs which it now knew to be off by more than 1 per cent.

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Some big fund complexes have not been affected, however, including Fidelity, which calculates its own NAVs, and State Street Global Advisors, which is owned by BNY Mellon's rival custodian bank State Street and uses its services.

Problems began on Monday as a result of a failed software upgrade by SunGard, which BNY Mellon uses as an outside supplier. The glitch was unrelated to the dramatic market moves of early Monday morning. The Securities and Exchange Commission, which was already monitoring markets for signs of trouble at ETFs, has been working with BNY Mellon and fund companies since the issue came to light.

With SunGard out of action, BNY had to rely on alternative means of calculating NAVs, and is now going back and calculating the official figures. For the most simple ETFs and other funds, there are not likely to be major discrepancies, market players said, but in more complex funds, it is possible prices were inaccurate.

It was not immediately clear how investors might be compensated if any traded on inaccurate information.

BNY Mellon said the system was returning to normal. "The SunGard system became available, in a limited capacity, late in the day on Tuesday," it said. "We are working with SunGard to resume normal processing as soon as possible."