In testing to begin this weekend, the $270 billion (€246 billion) securities industry will attack the year-2000 computer bug en masse.
More than 400 organisations, representing 98 per cent of the United States' securities processing infrastructure, will take part. They include major broker/dealers, custodians, stock exchanges, clearing and settlement utilities, vendors, and news providers.
Under the aegis of the Securities Industry Association (SIA), the test will simulate trading cycles from order entry to settlement, from just before New Year's Day and well into January, with between 500,000 to 750,000 validation points for all participants.
The objective is "to protect the United States' investing public," said Arthur Thomas, senior vice-president and director of global operations services at Merrill Lynch & Co and chairman of the SIA's year-2000 steering committee, which announced the effort on Monday. "We are simulating a real live cycle, and we're the only industry, to my knowledge, doing so."
Some 5,000 people will participate in the test over six weekends. March 6th-7th will represent December 29th, 1999; by April 24th-25th they will be at January 22nd, 2000, which will be complicated by options expirations.
The firms will work from scripts that tell them the details of the trade they are executing, that is, ticker symbol, quantity, time of execution and the name of the other party involved.
There are 850 test conditions covering nine major product groups: equities, options, corporate bonds, municipal bonds, unit investment trusts, mutual funds, money markets, government securities, and mortgage-backed securities.
Tests will run on a combination of production and dummy systems and communication lines, instead of separate systems set up exclusively for year-2000 testing.
Scripts that define transaction conditions were tested in a dry run last July, which encompassed 10,000 trades a day among 28 firms. "The results of the beta test verified that our testing methodology worked," said Mr Thomas.
Pricewaterhouse Coopers has assigned a "coach" to work with each firm from initial registration to completion of the testing, said Ms Marilyn Hignett, the consulting firm's New York-based director of solutions through technology.
"War rooms" will be set up in each of the firms involved, and the SIA will run a centralised command centre.
"We want to assess the results and fix anything that is not functioning," said Mr Thomas. "We want to get openness and honesty out on the table."
The euro conversion was a good learning experience for year-2000, he added.
"The test will identify for each participant what went right and what went wrong," said SIA executive vice-president, Mr Donald Kittell. "It will be an important diagnostic tool and will provide solid information about the readiness of the securities industry, individual firms and market participants."
Overall results will be released on April 29th and shared with regulators. It is up to each firm to disclose the progress of its own program.
The SIA has estimated that the direct cost of administering the test will be about $10 million (€9 million), and the cost to all of the participants is put at $100 million. The total cost of re-mediating computer systems for the entire US's securities industry is about $5 billion.
While this test will have a domestic focus, the securities industry is willing to share its data, ideas and key staff internationally. "The United States is still vulnerable to linkages from around the world," said Mr Kittell. "The United States testing program is very much an outreach programme. We're not an isolated test event here."
On the international side, the SIA has plugged into the Global 2000 Co-ordinating Group.
