Word from the Street: Ready for 2000

A recent trading test between securities firms, securities markets and market utilities should comfort some worries about the Y2K fallout.

The results of a recent industrywide trading test between 400 securities firms, nine securities markets and market utilities should provide some comfort to those worried about Y2K fallout.

During March and April, under the auspices of the Securities Industry Association (www.sia.com), participating firms simultaneously turned their computers’ clocks ahead to January 3, 2000, to see what would happen as they conducted simulated trades.

The result: Y2K-related problems affected only two one-hundredths of 1 percent of 260,000 transactions. In some cases, the date 1900 appeared on certain reports instead of 2000, SIA reports. In other trade processing routines, the year was displayed as a blank rather than as 00.

Data entry errors, miscommunication among firms about testing procedures and non-Y2K system problems accounted for most of the "unsuccessful" results, which were 2.5 percent of the total.

One non-Y2K glitch that occurred early in the process was the failure of a piece of communications hardware, which affected the data circuits of some of the firms. Messages were rerouted around the affected circuits. "SIA was informed that the equipment breakdown had occurred prior to the start of test," says John Panchery, vice president and Year 2000 project manager for the SIA. "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."

While the SIA tests are wrapped up, trading firms will individually test with markets and utilities throughout the summer and fall, says Donald Kittell, SIA executive vice president.

SIA is working closely with the securities markets and utilities to develop contingency plans that will address the ‘what-if’ scenarios that may occur—such as problems arising from Y2K failures in another country. Starting in December, fully staffed event management teams will be in place.

Test dates spanned the time period between December 29 and January 3. Financial and securities products typically take three days between the time a trade is entered to when it is cleared and settled.

The process "helped us detect problems or areas that needed further work while we still have time to fix them," Kittell says.

SIA estimates that the cost of the testing was $10 million, which was funded by an assessment of SIA’s member firms and participating markets, utilities and depositories. The total cost of the industry’s Y2K remediation efforts is expected to top $5 billion. The U.S. Securities and Exchange Commission, which regulates Wall Street activities, has announced that firms that are not compliant by October 15 should be precluded from conducting business.

Precautions are also under way among Canadian securities firms. Canadian Securities Administrators have advised that firms halt all systems changes or upgrades for the remainder of the year, once Y2K testing is complete.