System Outage on a Quarterly Dealing Day
On 31 March, a quarterly dealing day with a 12:00 cut-off, the transfer agency's core system fails at 09:15. By then 1,400 subscription and redemption instructions had arrived by portal, fax and email; 300 arrive after the failure. The team invokes the business continuity plan and logs instructions on spreadsheets, but there is no interface to the pricing system. The system is restored at 14:00. Reconciliation shows 27 duplicate instructions and 14 email instructions that were received before the failure but never logged. The fund accountant has used a 30 March price for the 31 March dealing because the pricing file did not update. The fund has USD 2.1 billion AUM and 38,000 unitholders; the regulator requires notification of material operational incidents within 24 hours. The CEO asks whether the fund can still strike a 31 March NAV and whether affected investors should be compensated.
1. Prioritise the immediate actions the TA should take after restoration, and explain how to treat the 31 March dealing.
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Immediate priorities: declare or confirm the BCP invocation and set up an incident command with named owners; freeze further manual processing except intake with time-stamped logging; preserve all email, fax, portal and spreadsheet records; reconcile every instruction by unique reference, investor and amount, de-duplicating the 27 repeats and tracing the 14 missing emails; determine which instructions were validly received before 12:00 using independent timestamps, not the spreadsheet entry time; notify the fund board, depositary, fund accountant and compliance. The 31 March dealing can still be processed only if the TA can reconstruct a complete and accurate order book and obtain the correct 31 March valuation. Do not strike the NAV using the stale 30 March price. If the correct price is not available, defer the dealing point under the fund's documented procedure and communicate to investors. Post-cut-off instructions go to the next dealing day. Any shares already allotted on the stale price must be identified and corrected under the pricing-error policy.
2. Assess the impact of the stale price and the missing and duplicate instructions on investors and on the fund's NAV.
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Stale price: using 30 March instead of 31 March means every 31 March subscription or redemption was dealt at the wrong NAV. If the market moved, one set of investors gains and another loses. The fund must quantify the difference, compare it with the prospectus's materiality threshold, and correct under the error policy: compensate the fund or affected investors, reallocate shares or make a cash adjustment. Missing instructions: if an investor's valid pre-cut-off order was not processed, they may have lost the deal; the TA should process it at the correct 31 March price if possible, or compensate for any loss caused by the error. Duplicates: if processed twice, cancel the duplicate and reverse the cash and shares; if only logged twice, there is no impact. The NAV itself must be restated if the error is material. Report to the board and, if required, the regulator. Do not conceal the error; the audit trail and investor communications must be clear.
3. Recommend the control and business-continuity improvements and the regulatory communications.
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Controls: an offline, time-stamped order-capture tool that queues instructions with unique IDs and reconciles automatically on restoration; mandatory dual logging of fax and email orders; daily three-way reconciliation between order book, cash and register; pricing-file completeness checks and four-eyes sign-off before NAV strike; automated duplicate detection; cut-off clocks synchronised to a single source; documented BCP with annual testing including pricing and reconciliation; call trees and alternate sites; vendor SLAs. Governance: incident log, root-cause analysis, lessons learned, board reporting and key-risk indicators such as manual orders and reconciliation breaks. Regulatory: assess whether the incident is material; notify within 24 hours if required, with facts, impact, remediation and client communication. Inform the depositary and auditors. Compensation: follow the fund's error policy and treat investors consistently; do not make ad hoc payments that favour vocal investors.