Advisory: ������������������ 24-99
For Release: ������������ June 7, 1999

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COMMODITY FUTURES TRADING COMMISSION � YEAR 2000 CONTINGENCY PLANNING FOR COMMISSION REGISTRANTS

In Advisory 55-97, dated November 4, 1997, the Commodity Futures Trading Commission (Commission) reminded futures commission merchants (FCMs) and introducing brokers (IBs) of their duty under Commission Regulation 1.16(e)(2) to report any "material inadequacies" vis-�-vis Year 2000 (Y2K) preparation. The Commission also reminded commodity pool operators (CPOs) and commodity trading advisors (CTAs) of their duty under Commission Regulations 4.24(w) and 4.34(o), respectively, to disclose "material information" pertaining to Y2K preparation. That Advisory listed the following four minimum phases for a sound Y2K preparedness plan: (1) Identification of systems that are Y2K vulnerable; (2) Update of the systems; (3) Testing; and (4) Contingency planning. This Advisory addresses contingency planning, the final phase of Y2K preparation. The Commission is issuing this Advisory to provide registrants with more detailed guidance and to diminish the potential of any serious Y2K disruption that could warrant Commission action to maintain or restore orderly markets.

There are a multitude of potential events within the futures industry, across other sectors in the United States and internationally that could impair the functions of registrants. A written contingency plan is critical in planning to address malfunctions. Accordingly, each FCM, IB, CPO and CTA must have a written contingency plan no later than September 1, 1999, and must be prepared to provide its contingency plan to the Commission and the registrant's self-regulator upon request. Because FCMs, IBs, CPOs and CTAs range from large multinational organizations to one-person operations, the Commission recognizes that the scope and contents of each contingency plan will vary to reflect the individual circumstances of the particular registrant. However, at a minimum:

• Each contingency plan must address all mission critical business functions including preservation of accurate books and records immediately prior to, and during the millennium transition.
  
• Each clearing FCM's plan should address what steps may be appropriate to facilitate the transfer of positions by exchanges, should events make this necessary.
  
• Each clearing FCM must establish a "command center" (see more details below).

The Commission is aware that many registrants already have begun planning to address disruptive events that may occur during the transition to the new millennium and in particular over the millennium weekend. These contingency plans likely will continue to be modified throughout the year. The principles set forth in this advisory are intended to provide guidance to registrants in developing their Y2K contingency plan. The manner in which the principles are implemented will vary greatly based on the category of registrant, its size and its dependencies on third parties.

1.�������� Command Center

• Registrants are strongly encouraged (and clearing FCMs are required) to establish a command center to operate during the transition to the new millennium. As appropriate, the command center would provide on-site supervisors to authorize needed actions, technical staff to carry out their instructions and special lines of communications to keep information flowing. Essentially, registrants need to have in place a clearly identified channel for making decisions and processing material information.

2.������� Critical Systems

For each critical system:

• Appropriate supervisory personnel should be designated to authorize needed action along with sufficient technical staff to perform the necessary tasks should a Y2K-related problem occur; and
  
• A strategy should be planned to address dysfunctions (e.g., quick fix, partial replacement, full redundancy or replacement and outsourcing).

3.�������� Notification Chain

• A list of persons and entities to be notified in the event of a dysfunction (e.g., regulators, customers and interfacing parties) should be prepared.

4.�������� Customer Relations Issues

• The contingency plan should designate persons responsible for disclosure to customers consistent with the registrant's fiduciary duties.

5.�������� Third Party Contingencies

• The registrant should plan a course of action, including trigger dates, in the event a service provider, bank, counterparty or other party upon which a registrant relies to carry out its critical functions fails to achieve Y2K readiness. Each registrant, to the extent practicable and relevant, should endeavor to take into account the contingency plans of those third parties.

6.�������� Validating the Contingency Plan

Registrants should validate their contingency plan, as appropriate, by:

• Conducting "dry-runs" for the dual purpose of testing the plan and training the personnel that will be in charge of its implementation; and
  
• Arranging for the contingency plan to be reviewed by qualified internal or external parties who have not participated in the construction of the plan.

Questions regarding this Advisory should be addressed to France M.T. Maca (202) 418-5482 [[email protected]]; Susan Elliott (202) 418-5464 [[email protected]]; or Martha A. Mensoian (202) 418-5246 [[email protected]]