SAN MATEO (01/01/2000) - Preliminary reports from the U.S. securities industry's year-2000 command center show cautious optimism over the real test to come -- when the markets in Asia and the Pacific and the United States start trading on Monday, Jan. 3.

Starting six hours after the millennium began on the East Coast of the United States, Donald Kittell, executive vice president of the Securities Industry Association (SIA), declared that, in spite of some minor problems, U.S. securities firms are ready for trading in the year 2000.

The SIA is an industry group representing more than 740 U.S. securities firms, including investment banks, broker and dealers, and mutual fund companies. The SIA has done extensive, industrywide, firm-to-firm testing and has been working closely with the U.S. Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD), which oversees the NASDAQ Stock Market, according to officials. NASD and SEC representatives also report no year-2000-related problems.

"We have found a few things that popped up," Kittell said of SIA member firms.

One unidentified firm discovered a minor, Y2K-related glitch with a third-party application and had the supplier quickly send a fix," he said.

"It was identified on December 31," Kittell said.

The firm that reported the problem did not reveal the identity of the vendor because the issue had been resolved, said John Panchery, vice president and managing director of systems and technology for the SIA. If a resolution to the problem had not been found, the SIA would have investigated further, Panchery said.

Another firm reported a decimal placement problem with a net asset value calculation for a financial transaction, but it's unclear if this was related to year 2000, Kittell said. "It was spotted very quickly and fixed very quickly," he said. This kind of error is not uncommon in the industry, "and we're not sure that it was a Y2K problem," he added.

The initial results, which include reports from stock exchanges, financial utilities, and electronic-communications networks -- whose smaller scale functions mirror those of exchanges -- were relayed via the SIA's intranet to the Financial Services Coordination and Communication Center of the SIA, which was formed over the last three months, Panchery said.

The organizations reporting to the SIA are also filing reports with the New York Stock Exchange, NASDAQ, and the SEC. These results are also made available to the President's Council on Y2K Conversion.

While Kittell and Panchery expect the industry has prepared for the opening trading bells on Jan. 3, they still have concerns about the back-end clearing and settlement of trades -- the final processing before money changes hands.

"We have not yet traded in the year 2000," Kittell said. The real year-2000 transition actually began Wednesday, Dec. 29, he said. Trades done on that day are likely to be settled on Monday, Jan. 3. Subsequent moments of truth will occur on Thursday, Jan. 6, and Friday, Jan. 7, when trades executed on Monday will put through the date-oriented settlement process.

"We're not done until then," he said.

The SIA led industrywide year-2000 tests in July 1998 and April 1999, which covered the order and entry, execution, clearing, and settlement processes of firms trading with one another. These tests did not include evaluations of internal applications such as the Microsoft Excel spreadsheet, popular with many traders. The year-2000-testing responsibility for these applications lies with each firm.

Year-2000 problems with utility companies and telecommunication providers were also beyond the scope of the testing process, as were foreign markets, Kittell said. The utility and telecom industries have yet to experience major problems.

"[But] when you get into the international arena, your confidence level drops," he said.

Over the last nine months, however, non-U.S., and particularly emerging markets, have "come up to speed," Panchery said. "We told them to use the SIA model for testing," he said. This model was essential for those markets that had begun testing within the last six months, he said.

Both Panchery and Kittell said they have been surprised by the calm that has followed the start of the 21st century. "I'm very confident about Hong Kong, Singapore, and the U.S.," Kittell said of the three major markets that will begin trading Monday.

Echoing the concerns of the SIA and several industry observers, John Gantz, chief research officer and senior vice president at International Data Corp.

(IDC), in Framingham, Mass., said the next "scary thing" in the year-2000 conversion would be how global financial-trading systems perform.

While U.S. firms await Monday, the Frankfurt-based Dresdner Bank has already successfully settled global trades during this first brush with the new millennium, said Rahul Merchant, New York-based executive vice president of Dresdner.

Dresdner's offices in Tokyo, Sydney, China, and Hong Kong are well into the next century and have not been experiencing problems, Merchant said. "They're giving us very encouraging news."

Just in case there are problems with its far-flung branches or trading partners, Dresdner has a manual back-up system in place to keep track of every transaction.

"Every day's work has been done twice," Merchant says.