As-Of Trade

A systems failure at Corvisart Securities means that a purchase order Perpetua placed at 3:30 p.m. on Tuesday is not transmitted to Halloway Growth Fund until Wednesday morning. The fund agrees to process the order as of Tuesday, whose closing net asset value was 0.40 dollars per share lower than Wednesday. Who bears the 0.40 dollar per share difference?

1. A.Perpetua accepts Wednesday price, because forward pricing admits no exceptionsForward pricing sets which computed net asset value applies to an order received at a given time. It does not penalise a customer for her firm operational failure.
2. B.The fund absorbs the difference, which is reflected in its total operating expensesThat would spread one broker-dealer mistake across every shareholder in the portfolio, which is exactly what the reimbursement requirement prevents.
3. C.Corvisart reimburses the fund, so that Perpetua receives Tuesday price and the fund existing shareholders are not dilutedCorrect. The as-of trade gives the customer the price she was entitled to, and the firm whose error caused the delay makes the fund whole for the difference.
4. D.The difference is netted against the 12b-1 fee the fund pays Corvisart in the following quarterA 12b-1 fee is fund money paid for distribution and service under an approved plan. It cannot be repurposed to settle a trade error.

Why: This is an as-of trade: a correction processed at a prior day price to put the customer where she should have been. Perpetua gets Tuesday price because she placed her order before the cut-off. But the fund existing shareholders must not be diluted by selling shares below the current value, so Corvisart, whose failure caused the error, reimburses the fund for the difference.

Operations at Lindenmoor Clearing receives a ticket keyed today but carrying a trade date three business days earlier, submitted as an "as/of" trade. Why does the department treat an as-of entry as an exception item rather than as an ordinary new trade?

1. A.An as-of entry can only ever be a correction of an earlier booking and never an original execution.Wrong. It states an absolute the mechanism does not support, and even a genuine original execution keyed late is booked this way.
2. B.An as-of trade settles on a cycle of its own, so it requires a separately negotiated settlement instruction.Wrong. Nothing about backdating creates a bespoke settlement cycle; the standard cycle simply runs from the earlier date.
3. C.The trade date on an as-of entry is assigned by the clearing agency rather than by the firm submitting it.Wrong. It hands the firm's own choice of date to an outside party, which is precisely the control the review is meant to exercise.
4. D.The backdated trade date drives settlement and entitlement, and a late entry can disguise an order that was mishandled.Correct. It names both reasons the entry is escalated: the downstream consequences of the date and the concealment risk.

Why: An as-of entry is a trade booked on one day but bearing an earlier trade date. Trade date is the anchor for settlement date, for accrued interest, and for whether the holder was of record for a distribution or a vote, so a backdated entry reaches into consequences that an ordinary same-day booking does not. It is also the mechanism by which a mishandled, late or unauthorised order can be made to look timely, which is why the entries are reviewed and approved rather than simply processed. An as-of entry that carried the same date it was keyed would raise none of these concerns and would not be an as-of trade at all.