[IWAR] Y2K costs

From: 7Pillars Partners (partnersat_private)
Date: Mon Jan 19 1998 - 10:17:21 PST

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    Millennium Bug Could Cost Billions - Study
       By Ruth Morris
       NEW YORK (Reuters) - Just one large bank experiencing a Year 2000
       computer system failure could cost global currency markets up to $3.3
       billion dollars in five days of suspended trade, bottlenecking and
       non-receipt of payments, according to a study.
       A series of such disruptions could cause gridlock across global
       financial markets "based on sheer nervousness alone," Computer Sciences
       said in a report on the Year 2000 computer problem, also called the
       millennium bug and the "Y2K" problem.
       "The message we're trying to get through is that there is a business
       risk issue with Y2K that actually goes beyond domestic borders," CSC
       senior consultant Adrian Sharp told Reuters.
       In other words, a bank, or clearinghouse, whose computer systems have
       not been fixed to handle date-sensitive transactions in the Year 2000,
       could cause financial hiccups, if not spasms, in another corner of the
       CSC reported its findings, based on interviews with more than 90
       individuals at financial institutions, clearinghouses and regulatory
       bodies, at the SIA Year 2000 Conference in New York. The study focused
       on the settlement of foreign exchange transactions as an "operational
       trigger" that could cost the market more than $10 billion in the first
       week after the Year 2000 clicks over.
       The Year 2000 problem is born of a long-standing practice by
       to save memory space by denoting years using just two digits. Thus,
       systems in which the problem is not remedied would be unable to read
       date correctly after the year 2000.
       Sharp said respondents to a CSC survey on the problem generally felt
       millennium renovations were well underway in the United States, but he
       added: "Another way to think about it is to ask, 'If every financial
       institution in the United States was Year 2000 compliant would we still
       have a problem?' and the answer is, 'Yes, you potential could, because
       we do a lot of business with the rest of the world."
       As a result, institutions dealing in foreign exchange have a high stake
       in encouraging their overseas counterparts to tackle the problem
       head-on. And some countries are performing better than others.
       "Asia is seen as being behind," said CSC Banking & Capital Markets
       Practice director Peter Shelton.
       The study concurred, noting that clearinghouses in Asia account for
       than one-third of the foreign exchange market.
       The study found that bottlenecks from Year 2000 noncompliance could
       cause settlement failure rates to jump from the current one percent to
       as high as five percent in currency exchanges. A settlement failure
       refers to an institution's inability to deliver on its end of a foreign
       exchange transaction. The institution must then pay an "interest claim"
       to compensate the receiving party for the money it loses by not holding
       that asset.
       The costs could be compounded by lost opportunities as investors shy
       away from transactions for fear that counter parties might not be Year
       2000 compliant, Sharp said. A trading slowdown, in turn, could be drawn
       out as institutions investigated noncompliant trades.
       "The system can handle stresses, but the question remains exactly what
       levels of stress can it absorb before gridlock occurs," said Edward
       Yardeni, chief economist at Deutsche Morgan Grenfell.
       Earlier this month, Yardeni said he believed there was a 40 percent
       chance of global recession during 2000 as severe as the 1973-74
       And when it comes to routing out the computer bug, the foreign exchange
       market faces an obstacle that other financial organs do not.
       The New York Stock Exchange and the Nasdaq Stock Market can work to
       insulate themselves from the programming glitch, but foreign currencies
       are not traded at a centralized location and will not enjoy that safe

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