SEC: Brokers must be Y2K-ready by Nov. 15
Noncompliant firms will be asked to close
MARCY GORDON ASSOCIATED PRESS
WASHINGTON
Federal securities regulators will go to court starting Dec. 1 to shut
down brokerage firms that are not ready for the Year 2000, under new
rules adopted Tuesday.
In a 5-0 vote, the Securities and Exchange Commission set a target
date of Aug. 31 for brokerage firms to complete their Year 2000
compliance efforts but allow additional time for unprepared firms to
show that they will be ready no later than Nov. 15.
''Any firm that cannot achieve Y2K compliance in a timely fashion will
be required to cease doing business by Dec. 1,'' SEC Chairman Arthur
Levitt said before the vote.
''A few firms' lack of readiness could have adverse consequences for
countless others,'' Levitt said. ''We simply cannot allow firms to
continue to operate if they threaten the integrity of the system, or if they
are not able to assure customers' access to their funds and securities.''
Richard Walker, the agency's enforcement director, said the regulators
would go into federal courts starting Dec. 1 seeking injunctions that
would force the unprepared brokerage firms to cease operations and
notify their customers.
He said the regulators expect they will only have to go after ''a few''
problem firms.
The SEC estimates that only 1 percent or so of the 3,900 brokerage
firms covered by the new rules won't be ready by Aug. 31 for the
millennial date change.
Most major broker-dealers in the Twin Cities have told the SEC that
they have assessed their systems and have begun fixing any problems
and testing for readiness. Among those are American Express Financial
Advisors, Dain Rauscher Inc., U.S. Bancorp Piper Jaffray, Norwest
Investment Services Inc., Fortis Investors Inc., Lutheran Brotherhood
Securities Corp., Washington Square Securities Inc., John G. Kinnard
& Co., Miller Johnson & Kuehn, R.J. Steichen & Co., Miller &
Schroeder Financial Inc. and Ascend Financial Services.
Representatives of the Securities Industry Association and the National
Association of Securities Dealers weren't immediately available for
comment on the new rules.
Concerns about the Jan. 1, 2000, date stem from the fact that some
computer systems may read only the last two digits of a four-digit year
and interpret the year 2000 as 1900, potentially wreaking havoc on
financial transactions.
The new rules also apply to the 600 or so securities transfer agents that
are not banks. Transfer agents are responsible for keeping records of
shareholders of corporations and for issuing or canceling stock
certificates when shares are bought and sold.
The SEC has said failure of transfer agents to anticipate and fix Year
2000 computer problems could seriously disrupt corporations' dividend
payments and other transactions with their shareholders. Only a small
proportion of the agent companies, also around 1 percent, are
expected to be unprepared.
The market watchdog agency also requires mutual fund companies and
publicly traded corporations to disclose their readiness.
In the federal government's first major enforcement action related to the
Year 2000 problem, the SEC charged 37 relatively small brokerage
firms last October with failing to fully disclose the state of their
computer readiness. Some of the firms agreed to settle the charges by
promising to refrain from such violations in the future, being censured
and paying civil penalties ranging from $5,000 to $25,000.
In January, the SEC accused nine transfer agents of allegedly failing to
adequately disclose their readiness. Five of the agent companies settled
the charges and four contested them.
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