Bedrock Valuation Advisors (BVA) has launched a price adjustment verification service in response to recent enforcement actions by US financial services regulators that have levied fines of up to USD200m against buy-side institutions.
At the core of these enforcement actions were stale security prices or prices dictated by portfolio managers ("price adjustments" or "overridden prices") that resulted in misstated fund net asset value.
To mitigate the risk of misstatement and reduce the cost of multiple pricing sources, Bedrock's price adjustment verification service tracks adjusted prices at the fund level and compares adjustment behaviour to other funds that hold the same security.
Clients of the service are alerted if they are adjusting a security's price and other funds are not (potentially indicating that their adjustment should be interrogated) or if other funds are adjusting a price and they are not (potentially indicating a stale vendor price that should be fair valued).
Upon the request of the fund board, chief compliance officer or valuation committee, BVA experts will engage portfolio managers to examine adjusted prices and document valuation inputs, methods and assumptions.
BVA's service covers nearly two million securities, including corporate and sovereign bonds, mortgage-backed securities, municipal bonds, syndicated loans, private placements and illiquid stocks.
Matthew Berry, partner at BVA, says: "We are pleased to offer this innovative service to the buy-side community. Bedrock does not trade in securities, nor do we sell pricing or valuation services. We are uniquely positioned to offer our clients an unbiased view on the appropriateness of a security's price, regardless of its source."
Bedrock's price adjustment verification service is available as a standalone module or as an extension of BVA's valuation oversight and due diligence service.