Wall Street Bullish on Y2K Trades

Recently, 400 securities firms, securities markets, and market utilities simultaneously turned their clocks ahead to January 3, 2000 to see what happens. The good news is that so far, only one small glitch arose. "Based on preliminary input from participants, the crossover into Year 2000 is proceeding better than expected," says John Panchery, VP and Year 2000 project manager for the Securities Industry Association (SIA, New York), which sponsored the test.

The multi-firm test was scheduled to conclude at the end of April. The test covered a full trading and settlement cycle using systems converted to simulate five days that span the end of 1999 to the beginning of 2000. More than 170,000 simulated transactions for nine securities products were processed.

The failure of a piece of communications hardware affected the data circuits of a small number of firms. A contingency plan was exercised, and messages were rerouted around the affected circuits. "SIA was informed that the equipment breakdown had occurred prior to the start of test," Panchery said. "Most all the affected firms were back inputting trades by early afternoon. The others were in the process of developing alternate methods of data communication."

This was the first time that securities firms had the opportunity to test their internal computers' interaction with both the stock markets and the clearing and settlement utilities, according to SIA sources. The securities industry testing covers equities, options, unit investment trusts, mutual funds, corporate bonds, municipal bonds, mortgage-backed securities, governments, and money markets. The firm of PricewaterhouseCoopers, LLP (Los Angeles) oversaw and coordinated the test.

A closely watched pilot test involving 28 firms was conducted last summer. That test also went smoothly, with no apparent Y2K glitches, relates Jim Spellman, spokesperson for SIA. One of the main lessons learned from the pilot was that participating firms will require more "hand-holding" through the process, says Spellman. "Our challenge is to spend more time with the firms, to make sure they understand what to do in a testing mode."

This most recent round of testing was far more comprehensive, Spellman says. This type of testing -- which covers investment banks, broker-dealers, and mutual fund companies -- will also serve as a model for when the industry introduces decimal-pricing of securities in the near future.

While Spellman is confident funds will not be lost as a result of Y2K glitches, he is concerned about the impact of a consumer panic. "We want to avoid having everybody demanding statements at the end of December, and then demanding more statements in the beginning of the year so they can compare the two," he says. These demands could swamp financial firms' systems.

SIA estimates that the industry is spending about $5 billion on Year 2000 remediation. One major firm alone, Morgan Stanley Dean Witter, reports it has budgeted more than $125 million for Year 2000 work, while T. Rowe Price plans to spend up to $44 million.