FROM THE OFFICE OF PUBLIC AFFAIRS

I. Introduction

It is a real pleasure to be with you today to discuss one of the great challenges now facing the financial markets -- the Year 2000 computer problem. I would like to thank the Federal Reserve Bank of New York and The Bond Market Association for joining us in organizing this very important conference.

The American financial markets are the most sophisticated and highly developed in the world. This is something of which we should all be proud. In my short time at the Treasury Department, I have become even more aware of the leadership role that our financial markets play in setting standards throughout the world. At the heart of developments in our financial markets, lie advancements in computers and communications technology. Technological developments have spurred a proliferation in products and market activity, and have fostered improvements in service and in the speed with which transactions take place. We also should recognize, however, that today's financial markets are highly complex and interdependent. All of these factors highlight the importance of making Year 2000 readiness one of our highest priorities.

Our focus today is the Treasury market, and the efforts that we all must make in order to avoid disruption of this critical market when the Year 2000 arrives. I would like to review with you some of the steps that the Administration is taking to address the Year 2000 problem. I will then discuss the testing that we are asking all of you to undertake.

II. Clinton Administration Efforts

Treasury's efforts to prepare for the Year 2000 are part of an Administration-wide initiative. President Clinton and Vice-President Gore have recognized the importance of immediate action in this context. They have directed Federal agencies to do everything necessary to ensure that the Government's mission-critical systems will continue to function effectively as we move into the 21st century. On February 4 of this year, the President's Council on Year 2000 Conversion was established to coordinate the Government's efforts to address the Year 2000 problem. The Government estimates that it will spend approximately $5 billion, from fiscal years 1996 to 2000, to make its systems Year 2000 compliant.

Internally, Federal agencies are working to ensure that our own systems are ready for the Year 2000. Externally, we are making inventories of all data exchanges with outside partners. We are also reaching out to increase awareness of the problem and to offer support to minimize Year 2000 disruptions.

III. Treasury Department Efforts

On Friday, December 31, 1999, the Treasury Department is scheduled to make principal and interest payments of $35 billion. We are also scheduled to issue securities on that date. On Monday, January 3, in the year 2000, we currently plan to conduct our usual weekly Treasury bill auctions. Treasury is committed to taking all the necessary steps to avoid any major disruption on that first trading day of the new millennium. As both the issuer and the regulator in this market, we are responsible for maintaining market liquidity and safety, as well as ensuring that government securities brokers-dealers are addressing Year 2000 readiness.

The Treasury and the Federal Reserve have made internal efforts to test all of our various systems. Specifically, the Bureau of Public Debt has identified 14 critical securities-related systems and has established a schedule of target dates for those systems to become fully compliant. The critical systems include the national book entry system, its auction and trading systems, the Fedwire system, and Treasury DIRECT. Fortunately, nine of the 14 systems were designed compliant. Twelve of the 14 already have the appropriate coding, and are in the testing phase. We expect to complete both code testing and interface testing for all but one of the systems by the end of 1998. In addition, we are developing plans of action in case any of the systems do not function as we hope they will.

Another step we are taking is the publication of a proposed rule under the Government Securities Act. The rule will require reporting on Year 2000 readiness for approximately 25 specialized government securities broker-dealers. The rule is based on the SEC's temporary rule amendment to SEC rule 17a-5, which covers general purpose broker-dealers.

IV. Year 2000 Readiness Testing

We are also helping market participants to focus on the Year 2000 by encouraging them to undergo Year 2000 readiness testing. This conference is an important part of that effort. The testing plans give you the opportunity to test critical applications used to transact business in the Treasury securities market, in future-dated environments. We urge you to test your automated front-end and back-end interfaces, both with Federal Reserve applications, and with others in the market. We also urge you to undertake testing both for auctions and for secondary market transactions. Such testing should ensure that transactions can be processed from end-to-end. The proposed testing offers flexible schedules and multiple opportunities to test input and/or output. Your participation in these tests is crucial.

The panels for this conference underscore the breadth of this market and the many interconnections and dependencies of the participants. Given the many participants in this market, it is vitally important for you to make sure that your testing plans include all relevant players.

V. Conclusion

Treasury and the Federal Reserve are committed to working with you to address Year 2000 readiness. If you identify additional testing needs or discover other relevant information, please share that information with us and with each other. The contact at Treasury for these issues is Carl Locken. In addition, you will find in your program materials a contact list of key market participants involved in Year 2000 readiness testing. We encourage you to make use of those resources.

Let me conclude by thanking you for your efforts to date. The financial industry has been working very hard to solve the Year 2000 problem. In particular, I want to recognize the substantial volunteer efforts of many firms that participate in industry groups working on Year 2000 issues. I have every confidence that if we continue to work together and successfully complete the testing phase, we will have a Treasury market that functions effectively as we enter the 21st century. Thank you very much.