Financial Markets ARE Worldwidegreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Some very heavy hitters are standing up and taking notice. I think this will only become more prevalent and at some point the markets will wake up.
YEAR 2000 GLITCH COULD TRIGGER GLOBAL FINANCIAL MARKET DISRUPTION, CSC STUDY FINDS
New York, Jan. 15 -- What if the basic computer commands that allow a major U.S. financial institution to trade millions of dollars with a leading German institution misfired and sent incorrect information? That glitch could spark a series of disruptions that might cost the market more than $10 billion in just a week's time. Even worse, it could cause gridlock across global financial markets based on sheer nervousness alone.
This is one finding in a new study released today by Computer Sciences Corporation (NYSE:CSC), one of the world's leading systems integration and management consulting firms. CSC found that the year 2000 computer bug, dubbed by CSC the "Y2K Risk Factor," may be the first example of how the computer problems of a single company could trigger marketwide trouble on the scale of the recent financial woes in Southeast Asia. The CSC study, titled "Sustaining Stable Financial Markets through the Millennium," was released during the Securities Industry Association Year 2000 Conference and Exhibit in New York.
The study is part of the CSC Financial Markets Y2K Initiative, a multifaceted program sponsored by CSC to raise awareness of the risks and potential ramifications of Y2K in the financial markets. CSC has complemented the research study by forming an advisory board of distinguished academic scholars and financial industry experts.
Members of the CSC advisory committee include John Panchery and Michael Tiernan, Securities Industry Association; Patricia Collins, Merrill Lynch; Dr. Edward Yardeni, Deutsche Morgan Grenfell; Prof. Frank Edwards, Columbia University; Prof. Anthony Saunders, NYU Stern School; Prof. Hans Stoll, Vanderbilt University's Owen Graduate School of Management; Prof. Marshall Blume, Wharton Business School; and Dr. Richard Olsen, Research Institute for Applied Economics.
The study focuses on the settlement of foreign exchange transactions. It provides a blueprint for potential costs of Y2K disruption in all capital markets, which are heavily dependent on technology to process and communicate trading and market information. It found that problems caused by year 2000 non- compliance could cause settlement failures in foreign exchange to jump from the current one percent to as high as five percent -- a 400 percent increase.
The study found that Y2K failures could cost up to $10 billion over five days. In examining the costs, CSC posed three potential scenarios: 1. The failure or serious system disruption of a major foreign exchange player. Total market costs: US$2.4 to $3.3 billion over five days.
2. A group of smaller institutions that have similar problems. Total market costs: up to US$2.2 billion over the same period.
3. A failure of a clearing house responsible for processing a significant number of transactions. Total market costs: up to US$5.2 billion over one week.
"These costs cannot be examined in isolation," warned Peter Shelton, practice director, Banking & Capital Markets at CSC. "We have to take into account the far-reaching systemic impact these failures will have. "After all, foreign exchange underpins all international capital markets activity. Given the interdependency between foreign exchange and other capital markets, the actual costs of Y2K disruption to the capital markets as a whole will likely be significantly higher."
"Global capital markets are virtually 100 percent electronic, making the marketplace utterly dependent on technology," explained Adrian Sharp, senior consultant, Banking & Capital Markets at CSC. "The inability of one firm to complete its trades in a timely manner, coupled with the uncertainty of when year 2000 'root cause' system faults will be rectified, will send shock waves through the whole market."
A Y2K failure is defined as business disruption caused by computer systems that cannot correctly interpret dates beyond 1999. Those failures can occur in many ways, according to Craig Plotkin, senior consultant at CSC and an analyst for the study.
"Software that uses dates to calculate interest, exchange rates or other monetary amounts may not perform those calculations properly," said Plotkin. "Trades may be transmitted with incorrect or missing information, or may not be transmitted at all, due to non-compliant computer systems. If one firm injects bad trades into the system, its trading partners would have to manually investigate each one, which would slow things considerably.
"These delays, and the resulting skittishness of the market, will drive up costs and result in lost profits for the entire market," added Plotkin "Your firm's systems may be year-2000 compliant, but that won't protect you from the risks posed by firms that aren't. They don't even have to be direct trading partners to affect you."
CSC's study findings are based on interviews conducted in October 1997 with more than 90 individuals representing financial institutions, regulatory bodies, associations and clearing houses including Citibank, Merrill Lynch, Deutsche Morgan Grenfell, the Federal Reserve Bank and CHIPS. Respondents ranged from institutions' bank economists and foreign exchange traders to global risk managers and operations experts.
For copies, contact CSC at 973.243.7770.
CSC had $6 billion in revenue for the 12 months ended Sept. 26, 1997. Headquartered in El Segundo, Calif., the company has nearly 44,000 employees in more than 600 offices worldwide and provides clients with a wide range of professional services, including management consulting, information systems consulting and integration, and operations support. More information on Computer Sciences Corporation is available via the Internet at www.csc.com.
All product names referenced herein are the trademarks of their respective companies.
-- Mike Lang (email@example.com), January 17, 1999
Well, it is a good article but I kept researching and discovered that it is from Jan 98. The good ones never seem to rate much coverage. I sometimes wonder why I keep looking, after all I certainly need no more convincing. Perhaps I just hope that more and more people will get it before it is too late.
-- Mike Lang (firstname.lastname@example.org), January 17, 1999.
I could apply the word "could" to anything, and I don't even have to conduct a survey. Earth "could" get sucked into a black hole this coming June 22. Can I sell you a chunk of land on Mars, and design a spaceship for you to go there?
What we can use is someone to come up with some definite answers.
Just remember, a lot has changed since October 1997, and these people are in the business of "information systems consulting and integration."
The least they could do is come up with a story we haven't already heard!
-- (m.d.@web.com), January 17, 1999.
I believe I remember seeing a news story a couple months back where CSC was awarded a multi billion dollar contract to remediate US government computers. They have all of about nine months to have it done. Anybody hear a "great big sucking sound"?
-- a (email@example.com), January 17, 1999.