[IWAR] Y2K bank holiday proposed

From: 7Pillars Partners (partnersat_private)
Date: Mon Jan 19 1998 - 10:25:46 PST

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    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.
         Related Articles
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         (January 13, 1998)
         A Race Against the Calendar
         (December 7, 1997)
         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
         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.
         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
         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
    Copyright 1998 The New York Times Company

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