January 19, 1998
An Extra Day to Fine-Tune 1,000 Years
By SAUL HANSELL
W all Street has been planning to update its vast networks of
computers since at least 1995 to insure that they can handle dates in
the year 2000 and beyond. Now, with less than two years to go, it is
about to ask for extra time -- one day's worth.
The Securities Industry Association, Wall Street's main trade group,
is preparing to recommend that markets be closed on Friday, Dec. 31,
1999. In a speech at a conference on the year 2000 problem, Irving
Weiser, chief executive of Dain Rauscher and chairman of the
association, said the brokerage industry needed an extra day to close
out its books before the millennium.
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(December 7, 1997)
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Many old computer programs use only two digits to represent dates,
recording 1998, for example, as 98. If left unmodified, on Jan. 1,
2000, these systems would react as if they had gone through a time
warp back to 1900, causing all sorts of havoc. New credit cards could
read as expired, a century's worth of interest could suddenly be
applied to loans, and so on.
The securities industry is spending $6 billion to reprogram every
computer, from those on the floor of the New York Stock Exchange to
those that print investors' mutual fund statements. Much of the
initial work is supposed to be done this year so that the results can
be tested and, if necessary, fixed next year.
One of the biggest fears is that different firms and exchanges will
adjust their date processing in different ways. In that case, two
computers that each have been fixed might nonetheless crash when they
are connected to each other. Because the world's markets have more
than 500 trading and funds-transfer networks, this is a real fear.
"We are perhaps the most co-dependent of industries," Weiser said.
During the elaborate fire drill that the Securities Industry
Association plans in 1999, all of the brokers, investment companies
and exchanges in the United States will test how their systems work
together.
On a series of four Saturdays, starting March 6, 1999, all stock
market participants will execute a series of test trades to shake out
any bugs. The first day will simulate Dec. 29, 1999, followed by Dec.
30 and 31 the next two Saturdays. The final Saturday will be like the
crucial first day of trading in 2000: Monday, Jan. 3.
For those who fail the test, and those not ready in time, there will
be additional tests later that year.
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Even if the worst is unlikely to occur, the securities industry is
pushing for a Dec. 31, 1999, trading holiday as an extra ounce of
prevention.
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But stockbrokers, even as they are working diligently to rejigger and
test their computers, are beginning to think the unthinkable and
tally up the risks of what will happen if some of their computers
cannot make it into the new millennium.
At the conference last week in New York City, Hope Woodhouse, a
Salomon Brothers managing director, presented an analysis of what
might happen to the government bond market if computer systems
malfunctioned. If a single bond dealer's computers went out, as has
happened for other reasons from time to time, it would initially be
manageable, she said. The dealer would receive bonds from trades made
the previous day, but could not sell any more. This would bloat its
inventory, requiring a big overnight bank loan to pay for what it had
bought. "If this happens for one or two days, it's not a huge
problem; if it goes beyond that, you are basically out of business,"
Woodhouse said.
The problems would be worse if one of the two main banks that serve
government bond dealers, the Bank of New York and Chase Manhattan,
ran into problems. If either could not operate for a day, it would
probably have to borrow as much as $100 billion from the Federal
Reserve to balance its books, she said.
As for the Fed, which is at the center of all trading and money
transfer, the stakes are as high as they can be. "If the Federal
Reserve isn't operating, nothing can happen," Woodhouse said. "It
would be a disaster that would impact all global liquidity."
Even if the worst is unlikely to occur, the securities industry is
pushing for a Dec. 31, 1999, trading holiday as an extra ounce of
prevention. But for the brokers to have their one-day break, they
must overcome resistance from the nation's banks.
The banks worry that closing on that Friday would make them extra
busy the preceding Thursday and on the crucial following Monday.
"We think banks are going to be ready for the year 2000," said Sonia
Barbara, a spokeswoman for the American Bankers Association. "We are
working on the assumption that it is going to be business as usual on
that critical date-change weekend."
A top Fed banker said he simply wanted the industries to stop
squabbling. "Uncertainty about whether Friday, Dec. 31, should be a
bank holiday will not help anyone," said William McDonough, president
of the Federal Reserve Bank of New York. While there could be some
merit in the idea, he said, "we need to move on it soon or not at
all."
Copyright 1998 The New York Times Company
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