Don't recall seeing this posted

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SEC Still Struggling for Industry-Wide Compliance
By Gail L. Vannelli
July 20, 1999

The U.S. securities industry has been tackling the Y2K Problem since 1995. Therefore, it was the only industry in a position to do industry-wide testing in 1999. Participating in this testing, which was conducted in March and April of 1999 under the direction of the Securities Industry Association (SIA), were nine securities markets, 400 securities firms, and the utilities.

At first blush, the results seemed successful. Of the almost 260,000 hypothetical trades simulating transactions for the dates December 29, 30 and 31, 1999 and January 3, 2000, 97.54% settled successfully. Of the unsuccessful trades, only .02% was attributable to Y2K.

But what the SIA test summary failed to mention is that only a fraction of the SEC-regulated companies participated in the industry-wide testing, many of which are not yet compliant. The regulated companies include the registered exchanges, about 8,500 broker-dealers firms (with tens of thousands of branch offices and more than a half million registered dealers), about 8,000 investment advisors, about 5,350 investment companies (including mutual funds), about 748 transfer agents, about 15 public utility holding companies, and about 15 registered clearing agencies. These companies are electronically fused together not only with each other, but also with the Securities and Exchange Commission (SEC), the SIA, the National Association of Securities Dealers and its NASDAQ over-the-counter trading system, the banks, and the utilities. Picture this, and you'll get a small hint of the complexity of Wall Street data exchanges and the vulnerability of this market to Y2K disruptions.

The SEC certainly understood that the failure of any linked system in this tangled infrastructure would have a cascading effect on the rest of the systems, with disastrous consequences to world economy. So in July 1998, the SEC adopted rules requiring broker-dealers and non-bank transfer agents to file reports regarding their Y2K preparedness. In October 1998, a similar rule applying to investment advisors was adopted. The form report asks, among other things, what percentage of the mission-critical systems are being fixed, and what percentage are being tested. These are public reports that you can access at www.sec.gov/news/y2k/y2kreps.htm.

Unfortunately, some regulated companies chose to ignore the new rulings and failed to file the required form. In response, the SEC began to file administrative proceedings against them. For example, on October 20, 1998, the SEC filed cease and desist orders against 37 dealer-brokers, seeking sanctions. Nineteen of the firms settled with fines ranging from $5,000 to $25,000, totaling $235,000. On January 7, 1999, the SEC filed against nine transfer agents. On May 4, 1999, the SEC filed against six investment advisors.

On March 10, 1999, the SEC proposed yet another rule to assure that regulated companies would get their systems fixed in a timely manner. In its "Notice of Proposed Rulemaking," the SEC stated: "Based on the experience and information obtained fromprevious efforts, we have determined that it would be prudent to adopt additional safeguards to prevent or reduce any adverse effects of non-Year 2000 compliant broker-dealers and non-bank transfer agents on investors and the securities market." The proposed rule provides, in essence, that if a broker-dealer or transfer agent is not compliant by August 31, 1999 (with fixes verified by reasonable testing), it will be shut down.

Comments were solicited, and on June 26, 1999, Dale Way of the Institute of Electrical and Electronic Engineers submitted an objection. He recognized that the SEC had a responsibility to assure investors that the exchange system will remain reliable, but noted that the last thing anyone wants is for a jittery public to pull their money out of the stock market in an irrational manner. Furthermore, Mr. Way stated that complete testing and verification of the systems is not possible in the remaining timetable due to the number of elements involved: electronic devices, software lines of code, data elements, and the number of possible relationships among them. Therefore, he stated, the securities companies will "either have to tell the truth and be forced to shut down their organizations (which) will likely force the very panic we are all trying to avoid, or they will be forcedinto lying. This may buy a few months of false comfortbut in the end reality (that there will be system failures due to Y2K) will win out."

If the SEC decides to adopt this proposed rule, the public will have a rude awakening if the firms with which they do investment business begin to close their doors due to Y2K noncompliance.

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Ray

-- Ray (ray@totacc.com), July 22, 1999

Answers

Here is the Link

Ray

-- Ray (ray@totacc.com), July 22, 1999.

Good post. Thanks.

-- Dog Gone (layinglow@rollover.now), July 22, 1999.

What, precisely does this little snippet mean?

In addition, the Y2K Act expressly exempts Y2K actions involving private securities claims arising under the Securities Act of 1933 and other Federal securities laws that do not involve actual or constructive awareness as an element of the claim (e.g., section 11 of the 1933 Act). More generally, actions by the Securities and Exchange Commission are excluded from the definition of "Y2K Action."

See the USIA Washington Files...

21 July 1999
Text: Clinton Signs Y2K Legislation into Law

http://www.usia.gov/cgi-bin/washfile/display.pl?p=/products/washfile/ latest&f=99072101.glt&t=/products/washfile/newsitem.shtml

Search House Bill Text on Y2K Act...

http:// thomas.loc.gov/home/c106query.html

The H.R. 775 "Y2K Act" (Y2K Act (Enrolled Bill (Sent to President)))

http://thomas.loc.gov/cgi-bin/query/D?c106:6:./temp/ ~c1064tbipC::

-- Diane J. Squire (sacredspaces@yahoo.com), July 22, 1999.

I posted the following on another thread, but it was late in the work day. The wording of this "disclosure" is so stale, it made my cereal soggy this morning.

I received the following "article" in a quarterly newsletter to shareholders of Alliance Mutual Funds. That's right, I'm naming names. I received the newsletter just a couple of days ago. I can't believe I even entrusted $1,000 of my money to these idiots. Please note the cut and paste quality of this article. What are vendors and suppliers for a mutual fund? Shouldn't they be a LOT more worried about the Y2K readiness or compliance of the companies they're investing in. Talk about DWGI!

Y2K...Just Around the Corner

As you may know, the Year 2000 issue or Y2K bug as it is often called, results from a common programming technique in software applications and embedded microchips that used only two digits to represent the year (such as 90) instead of four digits (1990). Any device or application that needs to process dates, from business applications to building security systems and desktop computers, to elevators can be affected. In the year 2000, any of these items might be unable to distinguish between 1900 and 2000 and could stop working correctly if applications or microchips are not repaired or replaced.

Alliance Capital is committed to assuring that its own systems will be Year 2000 ready and to verifying that its key suppliers and vendors are also Year 2000 ready. We began work on the Year 2000 Initiative in the third quarter of 1997 and continue to make steady progress towards Year 2000 readiness.

To date, we have completed the remediation and internal testing of all mission critical systems that are involved in servicing the vast majority of our clients. We expect to complete the remediation of all non-mission critical systems by June 30, 1999. We have participated in the industry-wide testing sponsored by the Securities Industry Asociation, and will continue testing with our strategic partners and service providers throughout 1999.

Contingency plans are being developed to deal with potential failures in our own systems or those of our vendors and suppliers. We fully expect that we will be Year 2000 ready on January 1, 2000 and that our operations will continue as usual. However, there can be no guarantee that the Year 2000 will come and go without distruption.

For more information on our progress, visit our website at www.alliancecapital.com. You may also access our quarterly reports to the Securities and Exchange Commission (SEC), which include updates on Year 2000 efforts through our website.

Certain statements included in this article are "forward-looking statements" within the meaning of the Private Securities Reform Act of 1995. Such forward-looking statements are subject to the risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. To the fullest extent permitted by law, the foregoing Year 2000 discussion is a "Year 2000 Readiness Disclosure" within the meaning of The Year 2000 Information and Readiness Disclosure Act, 15 U.S. C. Sec. 1 (1998).

-- nothere nothere (notherethere@hotmail.com), July 22, 1999.

Thanks Ray. Good information. Considering the importance of the industry, there has been remarkably little in the way of facts.

Those who choose to ride the rocket down will have an exciting trip. I think that I will pass.

-- Mike Lang (webflier@erols.com), July 22, 1999.