Advisory: 55-97

For Release: November 4, 1997


The Commodity Futures Trading Commission (Commission) wishes once again to emphasize the importance for all segments of the futures industry of taking immediate action to avoid the serious disruptions that could be caused by the use of computer technology which is not "Year 2000 compliant." Two-digit date field applications could interpret a year 2000 date to mean the year 1900. The Commission is aware that government agencies and self-regulatory organizations (SROs) have efforts ongoing to raise awareness of the potential Year 2000 problem and that many futures commission merchants (FCMs) and other Commission registrants have begun to address this issue. The Commission has asked all SROs to report on their preparatory programs and is conducting follow-up reviews. The Commission also has asked SRO auditors to include a Year 2000 readiness inquiry in their FCM inspections and to share with the Year 2000 Task Force of the Futures Industry Association and report to SRO management and the Commission any concerns with respect to the Year 2000 readiness of the members they inspect.

It bears repeating that a sound Year 2000 preparedness plan should, at a minimum, include the following phases:

1. identification of systems that are Year 2000 vulnerable;

2. update of the systems;

3. extensive testing; and

4. contingency planning in the event of malfunction of any part of the systems.

The Commission considers it to be the responsibility of each SRO and Commission registrant to inquire whether each entity on which it relies for any part of its operation, such as a service bureau, is actively involved in bringing its systems into Year 2000 compliance and to conduct testing to ensure that system interdependencies have been adequately addressed.

The Commission further:

reminds FCMs and introducing brokers that any "material inadequacy," as defined in Commission Regulation 1.16(d)(2), related to the Year 2000 question must be reported in accordance with Commission regulation 1.16(e)(2); reminds commodity pool operators (CPOs) and commodity trading advisors (CTAs) that Commission regulations 4.24(w) and 4.34(o), respectively, require CPOs and CTAs to disclose all material information to existing and prospective pool participants and clients. The presence of a Year 2000-related condition that may affect the soundness of disclosure by a CPO or CTA would be material information; and reminds SROs that Commission regulation 1.51 requires each contract market and related clearing organization to use due diligence in maintaining a continuing program to ensure that its automated systems function properly and that such requirement includes Year 2000-related issues.

Questions regarding this advisory should be addressed to Harvey Theberge at (202) 418-5200.