# Running practical data checks and controls
A pricing feed drops a decimal. A US large-cap held in a $2 billion fund gets marked at $18.50 instead of $185.00. If nobody catches it before the overnight batch, the fund's net asset value (NAV, the per-share value struck each day) prints wrong, client statements go out with a bad number, and the firm spends the next week filing a NAV error correction and reimbursing investors who traded on the wrong price.
Controls exist to catch that decimal. This lesson builds the daily and periodic control suite a fund operations team actually runs, with concrete tolerances and escalation paths.
Think in three layers:
1. Input checks: is the data we received plausible and complete?
2. Reconciliation checks: do two independent records agree?
3. Output checks: does the final product (NAV, statement, regulatory report) pass sanity tests before it leaves the building?
Each check needs three things defined in advance: a tolerance (how much deviation is acceptable), an owner (who investigates), and an escalation trigger (when it goes up the chain). A check with no tolerance is just a chart nobody reads.
Typical rule: flag any instrument where today's price equals the prior day's price to the cent, unless the market was closed. Then apply asset-class logic:
Flag any price that moves more than a set threshold versus the prior day. A common starting tolerance:
These are illustrative starting points, not regulatory limits; tune them to each portfolio's volatility. A move breaching the threshold is not automatically wrong (earnings surprises happen), so the check produces an *exception to explain*, not an error.
Here is the core logic in plain pseudocode:
for security in portfolio:
move = (price_today - price_prior) / price_prior
if price_today == price_prior and market_open(security):
flag(security, "STALE")
elif abs(move) > tolerance[security.asset_class]:
flag(security, "MOVE_BREACH", detail=move)Where the firm buys prices from two vendors (for example, Bloomberg and a second index or evaluated-pricing provider), compare them. A divergence above tolerance (say 0.5 percent on a liquid bond) means at least one source is wrong. This is the strongest input control you can run, because it does not rely on yesterday being right.
A corporate action is any event that changes a security's terms or your holding: dividends, stock splits, mergers, rights issues, ticker changes. These are a leading cause of quiet NAV errors because they are event-driven and easy to miss.
Key checks:
The SWIFT ISO 15022/20022 corporate action standards define the message formats most custodians and vendors use, which is why a two-source comparison is even possible: the events arrive in a structured, comparable form.
Entitlement here means "what the fund is entitled to hold and receive." The core daily reconciliation is between the firm's own accounting book of record and the custodian (the bank that legally holds the assets, for example State Street, BNY, or Northern Trust).
Reconcile three things every day:
| What | Break tolerance | Escalation |
|---|---|---|
| Share/quantity per security | Zero. Any quantity break is investigated same day. | Same-day to ops lead; unresolved >24h to fund controller |
| Cash balance per currency | Small tolerance for timing (e.g. under a set threshold or known in-transit items) | Aged breaks >2 days escalated |
| Market value | Depends on price source alignment | Value break with matched quantity points to a pricing issue |
A break is any mismatch between the two records. The discipline is not zero breaks (timing differences are normal); it is zero *unexplained aged* breaks. A quantity break that persists more than a day usually means a trade booked on one side and not the other, or a corporate action applied on one side only.
🎬 [VIDEO: "Reconciliation in Investment Operations Explained" - youtube.com - a clear walkthrough of how fund ops teams reconcile positions and cash against custodian records]
Two failure modes:
Practical approach: set tolerances by asset-class volatility, review the exception hit rate monthly, and adjust. If a check fires on 30 percent of the book daily, it is too tight and nobody trusts it. If it never fires, test it deliberately by injecting a known bad value.
A US equity fund holds 500,000 shares of a stock. Vendor A prices it at $185.00, vendor B at $184.60.
Now vendor A sends $18.50 (the dropped decimal):
That single position error, on a $2 billion fund, would move NAV by roughly 4 percent. The escalation trigger is obvious: any single-security NAV impact above a set basis-point threshold (many firms use something in the low single-digit basis points, for example a NAV error tolerance often cited around 0.5 percent for equity funds, an industry rule of thumb rather than a universal legal limit) goes straight to the fund controller before NAV is signed off.
Vérification des acquis
1. Why is an exactly-flat daily price (today equal to yesterday to the cent) treated as suspicious for a liquid US equity but potentially acceptable for a corporate bond?
2. A control dashboard flags price deviations but has no defined tolerance for what counts as an exception. According to the lesson's reasoning, what is the core problem with this?
3. In the three-layer control suite, catching a dropped decimal ($18.50 instead of $185.00) before it corrupts the NAV would primarily rely on which layer?
4. Select ALL correct answers about the three elements every control must define in advance.
Sélectionnez toutes les réponses correctes.
5. Select ALL correct answers describing valid distinctions among the three control layers.
Sélectionnez toutes les réponses correctes.
Not everything runs overnight.
The control suite is not just good hygiene; regulators expect it. In the US, the Securities and Exchange Commission (SEC) enforces rules on fund valuation, notably Rule 2a-5 under the Investment Company Act, which requires a documented, tested process for fair valuation. In the EU and UK, fund managers operate under UCITS and AIFMD (the Alternative Investment Fund Managers Directive) frameworks supervised by national regulators and coordinated by the European Securities and Markets Authority (ESMA), which require robust valuation and reconciliation controls.
The point of documenting tolerances and escalation is partly to have an auditable answer when a regulator or auditor asks: "How would you have caught this?"
Every exception needs a recorded lifecycle: fired, investigated, explanation, resolution, sign-off. Two reasons:
1. Evidence: you can prove the control ran and worked.
2. Learning: aged-break patterns and repeat exceptions tell you where a feed or a process is genuinely broken, versus a one-off.
A control that fires and gets silently cleared with no note is worse than no control, because it creates false confidence.