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Transfer Agents May Get Y2K Deadline

The SEC is proposing to shut down transfer agents for mutual funds which have not solved serious year 2000 computer problems by Oct. 15.

Fund transfer agents must assess their year 2000, or Y2K, computer programming readiness by Aug. 31 under an SEC rule proposed this month. If problems on Aug. 31 appear serious, then the fund transfer agents must make a special filing with the SEC describing their problems and pledging to solve them by Oct. 15. If the serious Y2K problems are not remedied by Oct. 15, the transfer agents will have to stop doing business.

The SEC also has proposed a nearly identical rule for broker/dealers. As part of the proposed rules, the agency said it will conduct examinations of both mutual fund transfer agents and broker/dealers on the issue of Y2K compliance.

"It is crucial that all broker-dealers and transfer agents be Year 2000 compliant because the problems of any non-compliant broker-dealer or transfer agent could have detrimental and potentially widespread consequences for other market participants," the SEC said in a statement March 8, announcing the proposals.

The agency has given the public until April 12 to comment on the proposals. In requesting comment, the SEC asked whether the Oct. 15 deadline was too early or too late for providing Y2K protection to the marketplace.

The SEC has gradually intensified its scrutiny of and pressure on Y2K issues. Last year, the agency required companies to begin disclosing the cost of their Y2K preparations. It then sued companies which failed to file the information and began exams of those whose filings suggested that their level of Y2K preparation may not be adequate.

Now, at least for broker/dealers and fund transfer agents, the SEC is proposing a deadline by which all serious problems must be solved. If serious problems are not resolved, the broker/dealers and mutual fund transfer agents must stop doing business and hand over key records to firms which are compliant. The SEC has also proposed a new record-keeping requirement as part of the new rules to make that transfer easier.

The proposal makes sense in light of the stakes presented by a key Y2K computer failure, said Peter V. B. Unger, a securities regulatory lawyer with the firm of Fulbright & Jaworski in Washington.

"I think that everyone is pretty much expecting this and is supportive," Unger said. "I thought it really was pretty reasonable."