Capelogic, a developer of compliance and financial software for the fixed income and mutual fund markets, is selling a so-called Fair Value Oversight System (FVOS) to help mutual fund companies comply with SEC Rule 38a-1.
It is an Internet-based solution that uses multiple pricing sources and market data to support fair-value pricing of fixed income securities held within an investment company’s portfolios.
“The fair valuing of securities has historically been subjective and considered an art, not a science,” says Randall Soderberg, president of Capelogic. “SEC Rule 38a-1, which re-emphasizes responsibility and considers fund share and portfolio security pricing as critical areas, has prompted firms to view fair-value practices for securities in a whole different light.”
Rule 38a-1 of the Investment Company Act of 1940 states that firms must adopt policies and procedures outlining how and when securities are fair valued. Capelogic’s Fair Value Oversight System reconciles securities held within a fund or funds on a daily basis, identifies potential outliers, advises of discrepancies and indicates corrective action taken. All portfolio holdings, their outliers, and corrective actions are maintained online in an historical database that can be retrieved instantly for auditing and reporting purposes.
Capelogic says the Fair Value Oversight System provides chief compliance officers with a demonstrable, fully auditable solution that helps support Rule 38a-1 requirements as they relate to the fair-value pricing of securities. In addition, says the company, investment advisers can uphold the requirements of Rule 206(4)-7 by relying on investment companies that comply with Rule 38a-1.