About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

FT Interactive Data Keen to Put SEC Pricing Slap Behind It

Subscribe to our newsletter

Financial Times Interactive Data (FT Interactive Data) will be anxious to dispel any industry disquiet caused by its settlement this month with the U.S. Securities & Exchange Commission (SEC). FT Interactive Data was named in the SEC’s civil fraud action against mutual fund company Heartland Advisers, allegedly for allowing Heartland to influence FT Interactive Data’s municipal bond valuations.

The incident, which took place three years ago, isn’t significant in and of itself. Published reports, though, have suggested that it could complicate FT Interactive Data’s efforts to market its so-called Fair Value Information Service, which is designed to take advantage of the ongoing regulatory scrutiny of pricing in the mutual fund industry.

However, the Heartland case didn’t involve FT Interactive Data’s Fair Value Information Service, but rather its pricing service for helping mutual funds calculate net asset values soon after markets close.

FT Interactive Data is taking great pains to explain how it has modified its procedures for valuing obscure securities, such as some international stocks and junk bonds. Indeed, as part of its settlement with the SEC – in which it neither admitted nor denied the charges against it – FT Interactive Data was ordered “to comply with certain undertakings regarding the pricing of securities for which market quotations are not readily available.” FT Interactive Data also agreed to pay a civil penalty of $125,000, and has reached agreement in principle to settle claims advanced by shareholders of the Heartland funds involved, according to a statement.

In an interview, Ian Blance, vice president of evaluation services at FT Interactive Data, says the company has agreed to more rigorous procedures and better documentation relating to its pricing practice for the kinds of illiquid securities involved in the Heartland case. The procedures, Blance says, are aimed at alowing FT Interactive Data to substantiate the methods by which it arrived at prices for these types of security, in which there is often no trading activity.

Blance distances the vendor’s Fair Value service from the incident. He says the Fair Value service relies on stastistical principles, in contrast to the fund pricing service, which indures a lot of human interaction.

The SEC settlement documents say FT Interactive Data has agreed not to assign valuations to securities in response to “special circumstances or needs” of its mutual fund clients. It has also agreed not to price high-yield municipal bonds on the basis of information received from a single investment firm contributor.

Hot on the case

Partly as a result of the ongoing mutual fund scandals, the SEC has been hot on the case of fair pricing. In response, FT Interactive Data, Reuters and others have introduced pricing services to help financial institutions meet their so-called ‘fair value’ obligations.

Fair value

Along with its competitors, FT Interactive Data has put great stead in its Fair Value Information Service, which it announced in February 2002 in response to an SEC letter a year earlier stressing the importance of fair value procedures for mutual fund companies.

FT Interactive Data launched the Fair Value service in August 2002 and has since signed up more than 20 clients, including Safeco Mutual Funds, Delaware Investments, ING Funds, Eaton Vance, J.P. Morgan Fleming Asset Management and Westcore Funds.

The Heartland case centred on deliberate mispricing of securities by Heartland senior executives. These executives, the SEC filings say, continued to uphold the value of six bonds held by two of Heartland’s funds, “despite numerous indications that the bonds … could only be sold at substantial discounts to their carrying values.” The executives apparently were attempting to disguise the worsening performance of the funds as the value of the bonds dropped.

According to reports, the Heartland executives approached FT Interactive Data in early 2000 to secure a gradual markdown of the bonds’ value, in order to correct the deliberate mispricing in a smooth – and hopefully unnoticeable – manner. As a result of these discussions, the value of these bonds – held in the Heartland High-Yield Municipal Bond Fund and the Heartland Short-Duration High-Yield Municipal Fund – was reduced by FT Interactive Data in increments of 0.5 percentage point of their par value.

Between March 7 and May 8, 2000, the reports say, the bonds were marked down from 87% and 98% of par, respectively, to 80% of par. By allow-ing this gradual markdown, the SEC found that FT Interactive “caused and willfully aided and abetted Heartland Advisors’ violations of the antifraud provisions of the Investment Advisers Act and the fund pricing provision of the Investment Company Act.”

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Best practices for creating an effective data quality control framework

Data quality is critical to capital markets processes from identifying counterparties to building customer relationships, regulatory reporting, and ultimately improving the bottom line. It can also be extremely difficult to achieve. One solution is a data quality control framework that includes an automated and systematic process that monitors the state of data quality and ensures...

BLOG

Challenges and Opportunities of Internal Self-Service Data Solutions

The concept of internal self-service data solutions is gaining traction as financial institutions and corporations see value in the data sets they generate through their business activities. That said, harnessing the data to provide valuable insights for internal business teams can be a challenge. One approach is to adopt a self-service data delivery model that...

EVENT

Data Management Summit New York City

Now in its 12th year, the Data Management Summit (DMS) in New York brings together the North American, capital markets enterprise data management community, to explore the evolution of data strategy and how to leverage data to drive compliance and business insight.

GUIDE

ESG Data Handbook 2022

The ESG landscape is changing faster than anyone could have imagined even five years ago. With tens of trillions of dollars expected to have been committed to sustainable assets by the end of the decade, it’s never been more important for financial institutions of all sizes to stay abreast of changes in the ESG data...