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Business Matters Investment houses prepared to overcome potential Y2K woes

February 16, 2011

By Staff Reporter

By Kevin FitzGerald

I can’t even open a newspaper or watch TV without someone giving me advice about the "Year 2000 problem." While I don’t think I need to build a bunker just yet, I’m not sure what to do with my investments.

— J.M., Manhattan

What’s going to happen when the clock strikes midnight on New Year’s Eve 1999? As the new millennium approaches, some doomsayers and prognosticators are predicting disruption with the computer systems that control our lives and our money.

While most experts dismiss the doom-and-gloom speculation, there still is genuine concern about the year 2000, also known as Y2K, stemming from the reality that there may be some interruptions in information technology systems, including those in the securities industry. Following is an analysis of the Y2K situation and some thoughts investors should keep in mind while educating themselves about ways to protect their investments in the event that problems occur.

What is Y2K

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The Y2K challenge began when early computer programmers used two numbers to record the year in order to conserve limited computer memory (e.g., 99 would mean 1999). On Jan. 1, 2000, computers that rely on two-digit dates may recognize 00 as 1900 rather than 2000. As a result, without correction there is a significant possibility that date-dependent functions processed after Dec. 31, 1999 might fail.

From technical perspective, year 2000 demands are straightforward — the goal is to permit systems to process date information accurately. However, year 2000 correction work is labor intensive and demands an extremely high level of thoroughness and accuracy. Consequently, many large firms have been addressing the Y2K challenge for several years. In fact, some federal agencies started work on Y2K corrections as early as 1989.

Securities and Y2K

From the orderly settlement of transactions to the timely distribution of account statements, nearly every aspect of the securities industry depends on the accurate processing of date-related information. Accordingly, a major concern for investors and financial advisors alike is whether the securities industry will be technologically prepared to enter the 21st century.

Most brokerage firms recognize that Y2K correction is one of the most significant systems challenges facing their businesses. For example, PaineWebber began its Y2K program in 1996 to permit adequate time for correction and testing well in advance of Jan. 1, 2000. Indeed, PaineWebber completed 85 percent of its internal testing by year-end 1998 and the balance was completed in March 1999.

In addition, the Securities Industry Association has mounted aggressive Y2K efforts, including devoting substantial financial and personnel resources to help guarantee that all industry-related systems are prepared for the new millennium. In April 1999, the SIA conducted the largest industry-wide test ever undertaken to prevent disruptions in the financial services industry when the year 2000 arrives. By the end of the test, reports from the approximately 400 securities firms, financial markets and utilities that participated in the test indicate that virtually all simulated trades entered were processed free of Y2K errors, providing increased confidence that the securities industry is prepared.

What investors should do

While the SIA and its member firms are working to ensure that industry systems are up and running on Jan. 1, 2000, investors should consider the following:

1. Keep good records. Throughout 1999, keep paper copies of account statements and confirmations of the transactions you make.

2. Talk to your financial advisor. If you have questions regarding your firm’s year 2000 readiness, contact your financial advisor for answers. Some questions you may want to ask:

€ What steps is your firm taking to become year 2000 compliant?

€ If your firm will not be ready, how could my account(s) be affected? Has your firm participated in any industry tests? If so, what were the results?

€ Is your firm’s research department evaluating companies’ readiness for the year 2000 before making investment recommendations?

3. Arm yourself with information. For further information, contact your securities firm. Many firms, including PaineWebber, have corporate websites with entire sections dedicated to the Y2K challenge. PaineWebber’s site is located at www.painewebber.com. In addition, you can contact the U.S. Securities and Exchange Commissions’ Office of Investor Education and Assistance at 1 (800) SEC-0330, or access its website at www.sec.com. The Federal government, in cooperation with the Federal Trade Commission, has also set up a toll-free number (888) USA-4Y2K, and a web site at www.y2k.gov.

4. Stay the Course. Investors must remember to keep their long-term objectives in mind. While the Y2K challenge may cause some minor disruptions, overreacting to these problems could result in bigger problems. Straying from your financial plan can lead to misinformed investment decisions that may make it more difficult to achieve your financial goals.

There are no guarantees that there will be a smooth transition to the new millennium. However, investors should be reassured that while the securities industry’s Y2K efforts constitute a major technological initiative, to date, many pieces of the Y2K puzzle are already firmly in place. The best advice for investors who are concerned about their individual accounts is to speak with their financial advisors.

The information contained herein has been obtained from sources believed to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Kevin FitzGerald is first vice president-investments at PaineWebber. He focuses on the areas of professional money management, asset allocation and retirement planning. He can be reached at 1 (800) 423-3381.

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