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In the wake of the recent mutual fund scandals, companies that deal in such instruments are under greater pressure than ever to provide an audit trail of their trading activities. The allure of gains to be made by market-timing or late trading have proven irresistible to some traders, but a new AdminServer (Chester, Pa.) product feature helps companies ensure a clean audit trail.
The vendor has added a feature, called Trade Auditor, to its policy administration system that allows clients to encrypt and time-stamp trades. The system reports all late trades to the firm's auditor or chief compliance officer and prevents alteration of the time stamp.
While the chances of someone changing the time stamp on a trade is unlikely, it is possible, and "insurance companies are scared to death of this possibility," says John Johnsen, managing director, TCi Research and Consulting (Cresskill, N.J.). "Trade Auditor provides another level of security," he adds.
Chris Doggett, AdminServer's president and CEO, says that adding Trade Auditor to its policy administration system was a direct result of industry concerns from traders such as Merrill Lynch, particularly in the past year. "There's a lot of noise in the marketplace about what to do about late trades," Doggett says. "How do we do business while still solving the system's problem of these late trades occurring?"
While Trade Auditor is designed to report all late-day trades, companies have flexibility in defining their own rules regarding overriding and processing late-day trades. For example, Trade Auditor can force the system to add all trades processed by customer service representatives as next day and/or report those trades to management. Trade Auditor enables companies to define the funds monitored.
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