Tag Archives: morningstar

SunGard ETF Pricing Glitch Update: BNY Has $220bil Headache

As reported earlier this week by MarketsMuse, a “computer glitch” suffered by market data vendor Sungard Systems has left custodian BNY Mellon still scrambling to price Net Asset Value (NAV) for nearly 10% of exchange-traded funds held by customers. Late Wednesday, BNY said 20 mutual fund companies and 26 ETF providers have experienced “some pricing problems.” According to sources, the snafu has impacted $220bil worth of assets.

According to Bloomberg news, “A technology breakdown at Bank of New York Mellon Corp., leaving it unable to price more than 10 percent of U.S. exchange-traded funds and some mutual funds, may be causing investors to overpay for them.

BNY Mellon said Thursday in a statement that it’s working “round-the-clock” to fix a technology issue at vendor SunGard Data Systems Inc. The snafu has prevented the bank from issuing net asset values, the equivalent of closing prices, for the funds. The bank said 20 mutual fund companies and 26 ETF providers have experienced some pricing problems.

The bank said customers have been able to continue trading the affected funds. But in the absence of accurate prices, some investors may have paid more than they should when purchasing them, said Ben Johnson, director of global ETF research at Morningstar Inc.

Johnson said that figuring out how to compensate investors hurt by the system failure will be a headache. He said mutual fund investors are likely to suffer more damage, because net asset values play a more critical role for funds than they do for ETFs.

U.S. Securities and Exchange Commission rules do not specifically address this matter, said an SEC official who asked not to be named. The bank’s liability may depend on the wording of its contractual agreements with the funds rather than securities law, the official said.

Kevin Heine, an BNY Mellon spokesman, declined to comment on the matter.

SunGard Apology

SunGard, a financial software company with annual revenue of $2.8 billion, said in a statement Thursday that the incident was not caused by any external or unauthorized system access, and wasn’t related to the market turmoil this week. The issue was caused by an operating system change performed by SunGard on Saturday, Aug. 22.

“We at SunGard apologize to BNY Mellon for the adverse impact this unfortunate incident has had on its operations and clients,” SunGard Chief Executive Officer Russ Fradin said…”

For the full story from Bloomberg, please click here

ETF Pricing Glitch Rattles BNY; SunGard Software Snafu

When it rains it pours. While many ETF investors have been sucker-punched while trying to execute orders during the past several highly volatile days, MarketsMuse finds that a second shoe dropped Monday on the heads of thousands of BNY Mellon customers thanks to a software snafu attributed to market data vendor SunGard systems. The “computer glitch” has impacted the Net Asset Value (NAV) pricing for nearly 800 exchange-traded funds and mutual funds administered by BNY, the world’s largest custodian.

According to the Wall Street Journal, BNY Mellon raised the alarm with regulators and held emergency calls with customers to try and resolve the problem.The system, known as InvestOne and run by financial software provider SunGard, resumed with limited capacity on Tuesday but was still not fully operational on Wednesday, leaving BNY Mellon with a backlog of funds to price.

sungard glitch1Morningstar, Inc., the fund research firm said that 796 funds were missing their net asset values on Wednesday, including ETFs operated by Goldman Sachs, Guggenheim Partners and several dozen mutual funds sold by Federated Investors. Invesco PowerShares Capital Management had 11 ETFs affected by the glitch, a spokeswoman said.

BNY Mellon said it was able to construct Monday net asset values (NAVs) for all affected funds. But there remains a backlog of Tuesday NAVs that still need to be generated.

The problems with calculating the net asset value of ETFs could raise trading costs for investors, said Todd Rosenbluth, director of ETF and mutual-fund research at S&P Capital IQ.

Several traders said they were forced to calculate their own net asset value for ETFs and that they widened the spreads, or the difference, between listed buying and selling prices to accommodate for the higher risk of trading.

“We measure our edge in terms of subpennies,” one trader said. “We can’t afford to be off by a penny.”

Early in the week, BNY Mellon notified regulators and U.S. stock exchanges about the issue. The Securities and Exchange Commission is monitoring the situation, an SEC official said.

“No one here can understand why it’s not up and running yet,” said one executive at a firm that was affected.

For the full coverage by the WSJ, please click here


New Rules: B-Ds Can Skirt Finra Research Rules When It Comes to ETFs

MarketsMuse ETF update profiles just-passed-by-Congress legislation that offers a sigh of relief for broker-dealers who aspire to frame ETF recommendations within the context of research (which might qualify them for ‘buyside research votes’), but have held back from issuing a buy, sell or hold recommendation for ETFs out of fear of Finra and/or SEC staffers sanctioning them.

All can guess that those lobbyists engaged by ETF issuers and sell-siders  who focus heavily on ETFs will be getting a hefty bonus in consideration for greasing the wheels and halls of Congress and helping brokerdealers creatively usurp Finra rules and regs when it comes to what is and what is not considered “research.” One group of folks not celebrating: top brass and salesman at Morningstar (read further)

Here’s the extract of the news from InvestmentNews.com

ETF Legislation approved this week by the House Financial Services Committee would allow broker-dealers to publish ETF research reports without the reports being considered offers to buy shares in the ETF.

The measure was co-authored by Rep. French Hill, R-Ark., and Rep. John Carney, D-Del.

A freshman legislator who came to Capitol Hill after working as a broker , Mr. Hill said most broker-dealers do not publish ETF research for fear of violating securities laws.

“This is a commonsense proposal,” Mr. Hill said at a May 20 committee hearing before the panel passed the bill. “With close to six million U.S. households holding and using ETFs, investors need access to this research.”


The ETF market has experienced double-digit annual growth over the past few years and, as of the end of April, included 1,496 funds with $2.1 trillion in assets, according to figures from Morningstar Inc.

As ETFs occupy a greater share of both retail and institutional investor portfolios, there’s a growing demand for insight about the vehicles, said Ben Johnson, director of global ETF research at Morningstar.

“There is a clear need for more research, more analysis across a very wide swath of the U.S. investor base,” Mr. Johnson said.

He said Mr. Hill’s bill is a good idea because investors would benefit from ETF research in the same way that they now can find research on individual securities and mutual funds.

If brokers issue their own ETF research, it could encroach on Morningstar’s turf. Morningstar can disseminate research through a so-called publisher’s exemption that applies to research organizations that aren’t regulated as securities firms.

“Any time there’s competition in the research space, that’s good for investors,” Mr. Johnson said. “It forces everyone to up their game.”

To continue reading this story from InvestmentNews.com, please click here

Sec Lending and ETFs: Reading Between The [Disclosure] Lines; A Good Primer

morningstarExtract courtesy of Morningstar/ Abby Woodham reporter

“..A well-run index fund is typically characterized by its ability to effectively track its index, lagging only by the amount of its expense ratio. In theory, it should not be possible for an index fund to come any closer to its benchmark’s return–but some do, including funds that utilize full replication of their index’s holdings. A handful of funds even beat their benchmark while perfectly replicating its holdings. How can this be? In many cases, this is an example of securities lending at work…”

“..Mining for Data
There are a handful of ways to get more information on the securities-lending practices of the ETFs in your portfolio. If you notice that your ETF (which is employing full replication) lags its benchmark by less than its expense ratio, it may be an indication that the fund is engaged in securities lending. Morningstar also publishes a calculation called the “estimated holding cost” that directly measures the performance of a fund relative to its benchmark over the past year. There’s a good chance that an ETF with an estimated holding cost that is lower than its expense ratio is also engaged in securities lending.”

For the full article (which necessarily incorporates subliminal promotion of products/services delivered by the ‘masthead’, please click here

2 More Studies Say: ETFs NOT to Blame for Market Volatility

Here’s a wake-up call to critics of the ETF world: two more unrelated and just-published research studies have acquitted the ETF industry of charges leveled by critics who have claimed ETFs are at the root of heightened market volatility.

In a newly-released report from the Investment Company Institute, which interrogated market volatility over the past 25 years, ICI’s experts (let’s presume their unbiased, OK?) concluded that ETFs have unfairly been cast as the dog wagging the tail, and accusations that “ETFs were the ‘match that ignited the Flash [Crash]’, or have in any other way been responsible for any unusual market volatility, are simply inaccurate and unjustified.

According to the report, “Heightened periods of volatility existed before ETFs (the most volatile during Black Monday ’87)”…more importantly,  “The market volatility that started before the financial crisis in mid-2007 and has continued through today has [simply] coincided with the rapid growth of the ETF market, as assets have grown from about $600 billion to more than $1 trillion.”  The report points out that “over the same time period, there was a prolonged global financial crisis that threatened to take down the international banking system and threw financial markets worldwide into turmoil.”

This report comes on the heels of a joint report issued by the SEC and the CFTC which determined that ETFs were not the cause of the May 2010 “Flash Crash”.  (Even if Editors here reserve comment on any potential conflicts these agencies might have), ICI’s report coincides with an earlier report study from Morningstar Inc., which investigated  and dismissed the notion that leveraged ETFs were causing increased turbulence late last year. The Morningstar report also pointed out that if leveraged ETFs were the cause of market volatility, the assets in the funds would rise and fall with volatility, but assets remained mostly steady from March 2009 to November 2011.