Wall Street set to run test on securities for Year 2000 woes

NEW YORK -- Wall Street is going back to the future. On Saturday, about 400 brokerage firms, banks, exchanges and other institutions will push the clocks on their computers forward to Dec. 29 as the first stage in a full-scale test of their readiness to trade stocks, bonds and other securities in the Year 2000.

Just as in July, when a core group of 28 Wall Street firms performed a trial run, the meticulously scripted tests will cover the first trades to settle in the new year, including options that expire Jan. 22. Because the $270 billion securities industry has been a pacesetter in dealing with potential Year 2000 computer problems and the July experiment went well, any major disruptions found in the tests would puncture recent optimism that banks, utilities and other critical parts of the business infrastructure can make the transition to next year without significant breakdowns.

The Year 2000 problem stems from the longtime practice of programming dates in computers with two digits for the year, like 99 for 1999. Some computers and software interpret 00 as 1900 instead of 2000 and others cannot interpret 00 at all, leading to crashes or faulty data. Securities companies began dealing with such problems sooner than most, partly because the need to handle long-term loans and bonds had alerted them to the hazards of two-digit coding. Domestic securities firms will end up spending $5 billion to correct the problems, according to the Securities Industry Association, which has been coordinating correction and testing efforts since 1996. The new round of tests will cost the association about $10 million and the participants as much as $100 million, according to Donald Kittell, executive vice president of the association. About 5,000 people will be involved. "This is a dress rehearsal for the real event," Kittell said. "We expect to come through with flying colors." In addition to involving many more brokers and much higher volumes than the trial run in July, the new tests will add about 30 large and small pension fund managers and other institutional investors into the mix. "They are representing thousands of buy-side institutions, and we have worked hard to get a representative sample," said John Panchery, the association's Year 2000 project manager. Another difference with July -- and the reason the tests will run only on Saturdays from March 6 through April 24 -- is that many participants will be using the computers they rely on for daily operations, not the separate systems set up especially for testing that were used in the trial run. The tests will start with mock trades that would be made on Dec. 29, 1999, and settled on Jan. 3, the first business day in the year 2000. On March 13, the test scripts will switch to Dec. 30 and the following Saturday to Dec. 31. The most crucial day in the test, Jan. 3, 2000, will be tested on April 10. The testing cycles will end on the following two Saturdays with a simulation of Jan. 4, 2000, a date that mutual funds need to completely exercise their processing systems, and a simulation of Jan. 22, 2000, the first date in the new year when options will expire. Experts say the industry could still run into problems even if the tests go flawlessly. To start with, there are many other potentially disruptive dates, especially Feb. 29, 2000, a leap day that many programs do not recognize. "The most important thing was to test an entire trading cycle over several days," Panchery said. Collectively testing individual days like Feb. 29 would be too expensive and complicated, he said. Still, the securities industry is setting a group testing standard that most others cannot hope to duplicate. Electric companies, for example, are planning a major test in April that will simulate various disruptions so that companies can see how well prepared they are to cope with them in a coordinated fashion, but they will not touch the systems that are actually generating power and controlling the grid. "There is no way to run a test of multiple utilities of any size and still have enough backup facilities to serve customers if something trips up," said Eugene F. Gorzelnik, a spokesman for the National Energy Reliability Council.

Copyright 1999
Provided by ProQuest Information and Learning Company. All rights Reserved.