[11023]
May 28, 1999
TO: PRIMARY CONTACTS - MEMBER COMPLEX No. 58-99
BOARD OF GOVERNORS No. 40-99
OPERATIONS COMMITTEE No. 21-99
TECHNOLOGY TASK FORCE
MUTUAL FUND YEAR 2000 PROJECT LEADERS
RE: SECURITIES INDUSTRY ASSOCIATION (SIA) - REPORT ON Y2K
CONTINGENCY PLANNING
______________________________________________________________________________
Enclosed is the report of the SIA’s Ad-Hoc Policy Committee on Y2K Contingency Planning
(the “Committee”). The report is directed at senior executives of securities firms and provides a policy-
oriented framework for preparation of Y2K contingency plans. A number of specific recommendations
are offered to assist firms to develop plans that address issues such as failure of public and financial
utilities, evaluation of counterparty risk, liquidity management, establishment of communication and
coordination centers, etc. While the report has a securities industry orientation, it includes information
that should assist mutual fund firms in preparing or refining their contingency plans.
The report is organized into four major sections:
` First, the Introduction and Executive Summary provides background information on the
Committee’s work.
` Second, the Recommendations and Suggestions section, pages 8 through 33, covers (1) a
framework for development of firm specific contingency plans, (2) issues to consider when
establishing coordination and communication centers, and (3) universal issues to consider when
preparing contingency plans such as systemic market failures, extreme liquidity pressures and
coordination of efforts between the private and public sectors.
` Third, the Trade Flow Scenarios section, pages 34 through 48 plus Appendix 1, traces the “life
cycle” of several classes of financial transactions, identifies potential breakdowns that could
occur in the trade flows and then considers the business implications of, and steps that could be
taken to respond to, such breakdowns.
` Fourth, the Managing Processing and Settlement Volumes section, pages 49 through 59,
describes efforts being taken by various sectors of the securities markets to manage transaction
volumes during the crossover into year 2000 in order to cushion pressure on the payment and
settlement systems. Market sectors planning special steps include the repo, commercial paper
and other short term debt markets, and the foreign exchange, mortgage and asset backed
securities, and futures and swaps markets.
As you will see on page 56, the report suggests that mutual funds with discretion as to the
timing of December income and capital gain distributions pay those distributions prior to Christmas
1999 in order to assist with efforts to reduce transaction volumes during the last week of the year.
The report includes information of interest to year 2000 project managers, portfolio
managers, trading desk personnel and other personnel responsible for securities processing, settlement
and portfolio liquidity. We encourage you to review this information with the appropriate personnel in
your organization and consider the issues raised in this report as you complete the preparation of your
Y2K contingency plans.
If you have any questions please contact me at (202) 326-5857, Don Boteler at (202) 326-
5845 or Kathy Joaquin at (202) 326-5930.
Lawrence R. Maffia
Senior Vice President
Enclosure