Massachusetts Begins Probe Into BNY Mellon Over Mutual Fund Glitch

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Massachusetts Secretary of State William F. Galvin announced he has decided to initiate an inquiry into the technical glitch at Bank of New York Mellon that caused led to major pricing problems in mutual funds and exchange-traded funds late last month.

Galvin supervises the Massachusetts Securities Division as part of his purview, and noted on Tuesday that the state had sent letters requesting more information from New York-based BNY Mellon and six of the largest mutual funds impacted  by the software glitch. He also noted that MSD is also investigating the extent that the technical issues could have hurt individual investors.

No one is suggesting that anything illegal occurred, but it is important to understand what actually caused the major mutual fund glitch that led to erroneous pricing so it can be prevented in the future.

BNY Mellon did not have an immediate comment on the Massachusetts Secretary of State’s announcement.

Statement from Massachusetts Secretary of State William F. Galvin

“In the warp-speed of trading these days computer problems can happen,” Galvin commented in a statement. “But the fallout that seems only to affect large financial institutions can hit the average investor looking at his and her retirement money.”

More on August mutual fund glitch

According to the statement from Galvin, the first round of letters were sent to Goldman Sachs, Deutsche Bank, First Trust Advisors, Guggenheim Investments, Prudential Investments and Federated Investors.

The issue cropped up on the crazy week of August 24, which saw a 1,000-point drop in the Dow Jones industrial average in the first minutes of trading Monday. Apparently, BNY Mellon provided incorrect prices for both ETFs and mutual funds at that time, and some prices were off by more than 1%..

The MSD statement claims the software glitch impacted at least 46 investment companies, hundreds of funds and hundreds of billions of dollars in assets..

Galvin’s statement below H/T Chris Dieterich of Barron’s 

“BNY Mellon is one of only a few companies responsible for providing net asset valuations (NAVs) of exchange traded funds (ETFs) and mutual funds. Final NAVs for mutual funds are relied upon by individual investors and institutional investors including retirement and pension plans to make trades.

During the week of August 24, BNY Mellon provided incorrect NAVs for both ETFs and mutual funds; some NAVs deviating more than 1%. The software glitch affecting at least 46 investment companies, hundreds of funds and billions of dollars of assets may have resulted in the inability of investors to trade mutual funds and ETFs at accurate prices.

The effects of the glitch have not yet been fully resolved, including the outstanding issue of what losses were suffered by retail investors as a result of the glitch.

The investigation asks that BNY Mellon and the investment companies provide the scope of the problem and type of corrective action that is being taken to address individual investor harm.”

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