Gary North's Y2K Links and Forums - Mirror

Summary and Comments

(feel free to mail this page)




1998-01-17 07:03:36


Prediction: Breakdown in International Currency Markets



According to a recent study, y2k could create huge losses in currency trading. These losses could cascade through the international markets. The study was funded by Computer Sciences Corporation (CSC).

The study included this ominous warning: "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."

* * * * * * *

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. . . .

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. . . .

"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." . . .

"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.


Return to Category: Banking

Return to Main Categories

Return to Home Page