Momtchil Pojarliev
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Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

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August 31, 1999

Clearing the Way for the 21st Century

By Richard J. Maturi

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Stamping Out Y2K Bugs

Clearing firms have taken the bull by the horns and met Y2K challenges head-on. Years of preparation and software conversion in anticipation of the date change contributed to a successful test of simulated trading conditions for December 30, 1999 by 400 securities firms, markets and utilities. The mock trades duplicated actual trading and clearing conditions with market trade cancellations, price corrections and "as of" transactions. During the simulation, Y2K-related problems were rare and quickly remedied. A breakdown in some communications hardware set contingency plans into motion with messages and information flow successfully rerouted around the affected circuits. A subsequent test of market data flow from the exchanges/originators to vendors and to clients in May 1999 also proved successful with no Y2K-related problems surfacing. Overall, the tests prove that critical market data and trade information will flow smoothly into the next millennium.

The securities industry has invested wisely to ensure that in January of the year 2000 that there will not be a problem. "During the past two-and-one-half years, the Securities Industry Association has spent $10 million to orchestrate the testing project and the 400 participating firms have spent over $100 million to perform industry-wide testing. Overall, we estimate that the entire domestic securities industry will incur in excess of $5 billion in costs associated with preparation for Y2K," says John D. Panchery, vice president and director, Systems and Technology with the Securities Industry Association in New York City.

In addition, to testing, the industry has been busy assessing and preparing contingency plans to ensure that everything works smoothly. According to Donald D. Kittell, executive vice president of the Securities Industry Association, "We've tested the Street's systems thoroughly and have proven that they can successfully simulate trading in 2000. But, just as any driver starting a long car trip carries a spare tire, we're going into the transition prepared for any situation. Anticipating any possible glitches that could occur, and making sure they can be fixed before they turn into problems, is the goal of our contingency efforts."

That confidence is echoed by the individual industry firms. "The industry testing worked flawlessly as confirmed by the major independent accounting firm which confirmed results before, during and after the testing. We have reviewed all internal and external applications and are going through a vendor review checklist to make sure we are compliant. We are 100% confident things will work well," says Jay C. Nadel, managing director of Weiss, Peck & Greer in New York City. Nadel also pointed out that preparing for Y2K created other opportunities to increase service and expand their contingency planning process to include disaster recovery plans outside of the Y2K arena.

Penson Financial Services is another firm not leaving anything to chance. "Above and beyond the mandated industry testing, we have performed upstream and downstream testing of our suppliers and other organizations that interface with us. Our batch process service bureau has undergone extensive Y2K compliance testing and is totally ready. When the clock rolls, we are ready to go," explains Daniel P. Son, president of Penson Financial Services, a division of Service Asset Management Company in Dallas, Texas.