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Thursday January 15, 1:11 pm Eastern Time
Company Press Release
SOURCE: Computer Sciences Corporation
Year 2000 Glitch Could Trigger Global Financial Market Disruption, CSC
Study Finds
NEW YORK, Jan. 15 /PRNewswire/ -- 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 - news), 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 [NYSE:DJM - news]; 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 clearinghouse 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.
Copies of the CSC study are available at a cost of $295. Discounts are
available for group purchases, trade associations and academia. 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 csc.com.
SOURCE: Computer Sciences Corporation |
