Matched Cross, a Month-End Mark and a Performance Fee

The price is outside the market - J$2.30 is 10 cents above the best offer - and that single fact drives most of the problems.

• The buyer is overpaying. The purchasing client pays above the price at which units are freely available. There is no auction, no competing quote, and no disclosure of the counterparty. That is not best execution.
• The seller's gain is manufactured. The fund books a price no independent buyer was asked to beat. The gain flows into NAV, into the benchmark comparison and therefore into the manager's performance fee - the manager is a beneficiary of the number it is helping to set.
• Valuation contamination. Using the last traded price as fair value for an illiquid holding was already weak; feeding a non-arm's-length print into that model makes the month-end NAV misleading to unit holders and to the trustee.
• Market integrity. A print above the offer, arranged between two accounts at one firm, creates a false appearance of a market at that level for every other holder of the security.
• Governance. The commission is the same either way, so the firm's motive is relationship convenience, not revenue - which is exactly the kind of soft pressure that erodes controls.

The core finding is a conflict of interest compounded by a valuation that depends on the conflicted trade.

A cross is not banned; a cross invented to produce a favourable mark is. A defensible one would need all of the following:

• A market-derived price. The execution price should sit within the prevailing bid/offer (J$2.05–J$2.20), or be supported by a contemporaneous independent valuation - not by an assumption that the seller deserves more.
• Exchange and rule compliance. Confirm the venue's rules on reporting off-market and cross transactions, price parameters, and whether the trade must be reported and printed.
• Informed consent from both sides. Each client should know that the firm is matching them against another client, that the firm acts as agent for both, and how the price was determined. Consent obtained after the fact is not consent.
• Order handling integrity. If both orders were live in the market, withholding them from the book to match internally removes them from price competition and must be justified against the duty to seek the best available terms.
• Documentation. A contemporaneous rationale, the quotes, the valuation support, and the signed consents.

If any of those cannot be met, the right answer is to route both orders to the market and let the book set the price, accepting that the seller may receive less.

Separate the trade decision from the valuation decision, because the same people currently control both.

The fund's administrator or trustee should be told the pricing model is not fit for an illiquid holding: 'last traded price' only works when there is a market. Replace it with a documented fair-value methodology - observable arm's-length transactions, yield comparison against comparable listed preference shares, a discounted cash-flow or spread-based model, and independent broker indications where available. If a cross is executed, it should not become the sole valuation input; the valuation should be struck on the methodology, and the trade reported alongside it.

The performance fee must then be recalculated on the corrected NAV. The manager should not take a fee that exists only because of a print it arranged. If the fee has already crystallised on an inflated mark, the firm should consider reversal and must escalate to the compliance officer and, if the error is material, to the board and the trustee.

The record should show who decided the methodology, when, and what they knew about the proposed trade at the time. A file that shows the investment committee welcoming a mark-up before the trade was priced is very difficult to defend later.