Case Studies
Fidelity Investments
Automating Remittance in a Mutual Fund
The Business
Most high-volume remittance processing operations have a lot in common. Envelopes containing checks come in and must be sorted, opened, extracted, scanned, routed, accounts credited and checks deposited. The machines that automate these tasks are impressive. The data operators that perform the requisite manual keying are skilled, and the exceptions are often the biggest obstacle.
As a large mutual fund company in the United States, Fidelity Investments (FWP) provides financial services for its 21 million shareholders. In addition to funds management, Fidelity offers human resources administration and employee benefits services to retirement, pension, health and welfare, payroll, and stock plans.
Time is of the Essence
Time is critical in any remittance operation, as invariably the goal is to get payments to the bank as quickly as possible. For FWP, processing takes an even greater urgency due to the
additional oversight of the Securities and Exchange Commission (SEC). Mutual fund companies are mandated to execute trades at the closing price on the day that orders are received. This means that any payment contributions must be processed at that day’s quote. Should a remittance be delayed, any fluctuation in the fund’s price becomes a liability to the firm.
Under the SEC’s Rule 22c-1 of the Investment Company Act (known as the ‘forward pricing’ rule), funds, underwriters and dealers must sell and redeem fund shares at a price based on the current net asset (NAV) next computed after receipt of an order to buy or redeem. The rule also requires that funds calculate their NAV at least once a day. Most funds, including Fidelity’s, calculate NAV when the major U.S. stock exchanges close at 4:00 p.m. Eastern Time.
Under Rule 22c-1, an investor who submits an order before the 4:00 p.m. pricing time must receive that day’s price, and an investor who submits after the pricing time must receive the next day’s price.
“They don’t care how we receive it,” said Roddell McCullough, Fidelity’s senior director, remittance processing. “They only care that once Fidelity takes possession of it we’re held to the forward pricing rule; we have to get it processed by 4 o’clock.” ...