Small Firms Grumble About Y2K Survey

An SEC rule that requires all broker/dealers to complete a written checklist of Y2K readiness is striking many as at once amusing, annoying--and a bit unnecessary. The SEC tossed out an earlier plan that would have required every single U.S. broker/dealer to hire an independent public accountant to attest to the millennium worthiness of its systems. Now, every firm must complete a 20-page mandated

An SEC rule that requires all broker/dealers to complete a written checklist of Y2K readiness is striking many as at once amusing, annoying--and a bit unnecessary. The SEC tossed out an earlier plan that would have required every single U.S. broker/dealer to hire an independent public accountant to attest to the millennium worthiness of its systems. Now, every firm must complete a 20-page mandated report by April 30, 1999.

Its not really a big deal, says Preston Pumphrey, head of Pumphrey Securities in Huntington, N.Y. Its mostly just a checklist, but one that hardly applies to our business. The compliance audit form asks for specific information about written plans, chain of command and implementation schedules.

Small b/ds say the questions generally dont apply to their shops, which run mostly on PCs. My Y2K plan is to wait for an upgrade from Microsoft says one small dealer in the Midwest.

According to Warren Forrest, a compliance consultant in Winter Haven, Fla., although many smaller broker/dealers are able to answer most of the questions, many worry that in skimming through the form, which is really the best they can do, they will not be in full compliance with SEC expectations. The way the SEC has been on this issue, theres a certain amount of confusion here. No one is entirely sure what they want from us, Forrest says.

The uncertainty stems from the political nature of the issue. In response to high-profile congressional concerns, the SEC first promulgated the CPA proposal. Then a single disclosure form for all firms was considered before the current plan of having different disclosure forms for different types of firms.

There have been a lot of problems with their approach, of which the auditor idea was the worst, Forrest says. An auditor would have been of questionable value. While some accounting firms have technology practices that might have brought something to the process, most accounting auditors would have no way of knowing whether a firms testing and implementation procedures have any value, and if a computer system was compliant.

With all due respect to my accountant, he doesnt even use Windows 95 yet, so I doubt hes in a position to attest to our readiness, Pumphrey says.

Most proprietors of smaller firms say theres little need for the industrys chief regulators to worry about their ability to function after Dec.31, 1999. What they should continue to focus on are the technology plans of their big clearing partners.

Its their technology that will determine if we sink or swim, says Bradley McCurtain, CEO of tiny Maine Securities in Portland, Maine. And so far weve heard very little from our clearing firm [Bear Stearns] on their plans for small brokers.

Similarly, Forrest finds it ironic that the SEC is worried about smaller firms, considering the history of technology problems at the NASD. Take a look at all the problems theyve had getting the CRD overhauled and running. I think the big question that needs to be addressed is how in the world the NASD is going to have their systems ready on time.

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