OPENING REMARKS BY CHAIRMAN ARTHUR LEVITT BD AND TA OPERATIONAL CAPABILITY/Y2K RULES OPEN COMMISSION MEETING MARCH 2, 1999 Good morning. Today, the Commission meets to propose rulemaking on two of the most pressing issues we face -- Year 2000 readiness and operational capability. On the eve of a new millennium, a myriad of opportunities and possibilities await America's capital markets and the securities industry. The power of technology will continue to make information available to more people around the world than ever before. Companies half a world away will increasingly conduct business just as easily as if they were half a block away. And, broker-dealers, transfer agents, and other market participants will rely more and more on computer technology to perform their most basic functions. Order entry, execution, recording changes in ownership, and distributing dividends are now all -- to a large extent -- automated processes. In recent months, record volume and significant price volatility have challenged automated systems. In the process, occasional delays in order execution or trading reporting have occurred. But, our capital markets have withstood these stresses on capacity and past problems have been corrected quickly. But, this is no time to be complacent. New challenges always abound. And, there are few bigger challenges today than ensuring that all of our computer systems can handle peak capacity and that they are Y2K compliant. I want to emphasize that the Year 2000 is no cause for undue concern. The securities industry -- for some time -- has been taking vigorous steps to address and solve the problem. In my view, the industry has risen to meet the responsibility of Year 2000 readiness. The firms and exchanges are actively testing their systems and are also developing detailed plans to address unforeseen issues. The industry is clearly on track. As a result, I am confident that if we remain vigilant the U.S. securities markets will be ready for Year 2000 and investors will be adequately protected. Today's rule proposals are another effort to help maintain that vigilance. They are designed to accomplish two things: first, they codify a broker-dealer's existing obligation to be operationally capable; and second, they ensure that the Commission has the tools necessary to find and close any gaps in readiness that may still exist at the end of the year. No matter how confident we may be that the securities industry is on top of this problem, we need to recognize that a few firms may not be Y2K compliant until late in the year. Supplementing the efforts of self-regulatory organizations and the Securities Industry Association, these rules are designed to identify those firms and determine whether and when they will in fact be ready. Any firm that cannot achieve Y2K compliance in a timely fashion would be required to effect an orderly transfer of customer assets and records before the Year 2000 roll-over. More specifically, these rules address what it means to be operationally capable in the context of Y2K. We welcome comment on whether the proposed criteria is appropriately targeted to identify firms that are not likely to be ready for the Year 2000, or whether additional specificity is warranted. A few firms' lack of readiness could have adverse consequences for countless others. That's a risk not worth taking. The Commission, therefore, must have the tools necessary to identify these firms and prevent them from causing problems for investors and the markets during the Year 2000 transition. I am confident that the proposed rules would not only provide us with such tools, but also go a long way toward assuring investors and the marketplace that they have every reason to welcome the new millennium. Before turning it over to Bob Colby of the Division of Market Regulation who will go over the specifics of the rule proposal, I want to commend the staff for their thoughtful work on this rule. You have made a significant contribution to ensuring the preparedness of our securities markets.