BNY Mellon's fund pricing glitch may persist into weekend

By Tim McLaughlin and Jessica Toonkel

BOSTON/NEW YORK (Reuters) - BNY Mellon Corp's computer snafu in calculating the prices of mutual funds and exchange-traded funds could extend into the weekend, prolonging confusion over the price of recent trades and any potential compensation owed.

After several days of scrambling to fix the glitch, the cause of the problem is still not fully known, nor is the corrupted system completely free of perfomance issues, according to BNY Mellon and financial services software provider SunGard.

The U.S. Securities and Exchange Commission is monitoring the situation and talking to fund companies that were affected, according to people familiar with the matter.

On Thursday afternoon, SunGard broke several days of silence and apologized to BNY Mellon and its clients for a glitch that happened during a systems upgrade last weekend. SunGard hosts an accounting platform that helps BNY Mellon operations calculate net asset values for its funds clients.

SunGard said the system was not hacked, but the glitch was caused by "an unforseen complication resulting from an operating system change" it performed. In what it called an isolated incident, SunGard said the production environment became corrupted during the change and so did the back-up system.

Some of the largest U.S. fund managers rely on BNY Mellon to calculate the net asset value (NAV) of their funds but SunGard's failed software upgrade buckled the system just as investors headed into a tumultuous week of trading sparked by fears about the Chinese economy.

"BNY Mellon is the plumber to mutual funds and capital markets," said Mike Mayo, a banking analyst at CLSA. "There are a couple of broken pipes, but it doesn't seem like a systemwide issue ... It might not be evidence, but this is a reminder that BNY needs to further upgrade its technology platform."

The breakdown affected 20 mutual fund companies and 26 ETF providers, BNY Mellon spokesman Kevin Heine said. He did not have any information on how many funds were affected.

Meanwhile, BNY was trying to work through a backlog of NAV prices. For example, the bank said it should be able to finalize Wednesday NAV prices later on Thursday, but only if no other problems develop.

The backlog may persist into the weekend, according to fund executives who declined to be identified because they were not authorized to speak publicly about the problems.

Investors who may have bought or sold mutual funds at inaccurate prices could be entitled to compensation if they incurred a loss on a trade because of pricing problems.

BNY Mellon's Heine declined to comment on what the bank would do regarding any claims for damages.

The SunGard system resumed with limited capacity on Tuesday, leaving BNY Mellon with a backlog of funds to price.

The SEC's Division of Investment Management, the primary regulator for mutual funds and ETFs, is taking the lead in reviewing and monitoring the situation. The agency has been talking with funds about how they are processing their net asset values in light of the BNY glitch, and how they are using alternate methods of pricing.

Problems began over the weekend, when SunGard upgraded its InvestOne fund accounting software, Heine said. He added that BNY Mellon did not learn about the problems until Monday.

SunGard is being bought by rival software provider Fidelity National Information Services Inc. Fidelity National declined to comment.

Federated Investors Inc is reprocessing trades for the five funds that had incorrect NAVs as a result of the glitch, a spokeswoman said. The Pittsburgh-based fund company will compensate investors for any losses, she said.

Problems also hit funds run by BlackRock Inc, Goldman Sachs Group Inc, Invesco PowerShares ETFs, Guggenheim Investments and First Trust Advisors.

In general, fund companies that compensate investors are expecting that Bank of New York Mellon will reimburse them, said one attorney, who represents fund companies affected by the glitch but declined to be identified because he was not authorized to speak to the media.

"Their reputation is on the line," the attorney said.

BNY Mellon started notifying fund executives at mid-day on Monday that there could be an error with NAVs, and had expected the issue to be fixed by market close, said the attorney and a fund official familiar with the situation, who asked not to be identified because he was not authorized to speak to reporters.

(Reporting by Tim McLaughlin in Boston and Jessica Toonkel in New York, additional reporting by Sarah Lynch; Editing by Carmel Crimmins, Andrew Hay and Jeffrey Benkoe)

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