Eugene Grygo, Chief Content Editor, FTF News
Fund custodian BNY Mellon’s ongoing woes via its outsourcing to SunGard is causing many issues to come to a boil with the main one being the effort to restore service to clients that rely on BNY Mellon for accurate net asset value (NAV) pricing support. With the news on Monday, August 31, it looks as if the firm is turning a corner on the crisis.
Yet when the smoke clears there’s another issue that will have to be addressed – the persistent lack of transparency in this industry.
From my limited perspective as a journalist, I think that transparency should be second nature now for industry participants especially after the Great Recession, which thrived on secrecy and deception. Sadly, BNY Mellon has struggled with transparency as the unfolding NAV crisis has shown.
After it became known that BNY Mellon had a problem with its NAV pricing, the firms was not initially forthcoming on key details and SunGard was declining to comment, not even acknowledging which system was at fault.
Unfortunately, this is part of the institutional secrecy that on the surface is supposed to ward off competitors and protect clients and ultimately investors. But, in this case, ducking transparency was not optimal.
To be fair, BNY Mellon just held a conference with customers on Sunday night, Aug. 30, and has been offering ongoing updates and a Q&A via its website. Its affected clients were also compelled to make regular announcements about readjusted NAVs and related issues. And three days into the crisis, SunGard issued a statement that began to clarify the nature of the problem. SunGard also apologized to BNY Mellon.
That is all well and good but I think that more transparency at the start of a crisis is the best way forward especially one that affects so many people. The most recent parallel that comes to mind is the halt in trading via the NYSE in early July.
Officials there discovered systems problems, halted trading, and decided to communicate frequently until the crisis was over. There were postings in social media, NYSE executives gave on-air interviews with cable news channels, and there was a truly open exchange with the media. By going the extra mile, NYSE officials were able to ease tensions as the problems were being dealt with. It was a smart move all around.
SunGard and BNY Mellon should have taken notice of how NYSE handled that situation. In my humble opinion, they should have had a joint press event at the start of the crisis, revealed as much as they could, and started ongoing interactions with all facets of the media. (BNY Mellon did initially send out letters and updates to its clients.)
The good news is that the bank and the vendor did ultimately embrace transparency and alerted those who were most impacted by the crisis.
Once this crisis is over, there will be many lessons to be learned and difficult issues to be mulled over such as the downsides of using a third-party outsourcer/service provider for essential trade processing issues.
But one thing is for certain — transparency has to be a key element of post-trade operations, particularly when a crisis hits.
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