Summary

Plans by the securities industry to convert computer systems to allow trading in decimals rather than fractions are generally on hold. The industry's resources are being devoted first to dealing with the Year 2000 problem, and industry officials believe that carrying out both the Year 2000 and decimalization efforts at the same time would jeopardize both. The securities markets have established a working group to expand on earlier industry discussions about decimal trading, develop decimal conversion standards, and set time frames for converting to decimals. GAO found that making Year 2000 changes continues to require significant resources from the securities industry and will demand much of the limited time remaining for testing the changes. Ensuring the success of these changes is too important for the industry to risk failure by attempting to implement decimal trading before the Year 2000 changes are made. However, GAO identifies several key elements that could help ensure that the change to decimal trading is made as soon as possible after January 1, 2000.

GAO noted that: (1) in 1997, the House Subcommittee on Finance and Hazardous Materials held hearings on proposed legislation that would have directed the Securities and Exchange Commission (SEC) to require that securities be traded using dollars and cents instead of the traditional fractions within 1 year of enactment of the legislation; (2) after industry representatives indicated that they were committed to converting to decimals, Congress took no further action on the legislation; (3) industry progress since the hearings has generally been limited; (4) officials of most of these organizations estimated that the cost to convert their systems for decimal trading would be much less than the cost for information technology efforts, such as the year 2000 conversion; (5) they also estimated that it would take less than 6 months to convert to decimals, but they did not expect to complete the conversion until after year 2000 changes have been tested and implemented; (6) an industry study showed that the securities industry was dedicating most of its available information technology resources and time to readying its systems for the impending date change in 2000, the introduction of a single currency in Europe in January 1999, and other information technology initiatives; (7) in particular, industry officials said the time required to test and resolve any year 2000 problems leaves little time for conducting the industrywide testing necessary for a conversion to decimal trading; (8) GAO's work reviewing the year 2000 efforts of numerous federal agencies and other entities has generally found that organizations are avoiding the simultaneous implementation and testing of multiple major systems changes to mitigate the risk of inadvertent malfunctions; (9) ensuring that securities industry systems are ready for the year 2000 is too important to the continued functioning of the industry to risk failure by attempting to implement decimal trading before the year 2000 effort is completed; and (10) however, GAO is recommending several actions that are needed to ensure that decimal trading is implemented as soon as possible after January 1, 2000.