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SEC Plans Close Operations Scrutiny for Y2K


The SEC may be overdoing it in its preparations for the computer-programming transition to the year 2000, according to some mutual fund operations executives.

The SEC is subjecting the operations groups at the largest mutual fund companies to unprecedented scrutiny at the end of this month and in the first several business days of the new year in an effort to monitor how well fund systems respond to the change in the calendar date to the year 2000. The SEC has asked the largest fund companies - a group fund officials said includes approximately 30 companies - to respond in writing to questionnaires beginning next week about the preparedness of their operations for Y2K, fund executives, lawyers and consultants said last week.

The Y2K filings must be made daily on the last few days of the year and they must include more information each day, fund executives and consultants said. And, beginning on Jan. 3, fund companies must file reports that fund executives describe as excessively detailed, given the filing deadlines beginning Jan. 3.

On that day, the SEC wants companies to file the reports at least three times a day - early morning, midday and after the close of business, executives said. The SEC may reduce the requirement beginning Jan. 5 or Jan. 6, executives said.

SEC officials declined to provide details of the agency's questionnaire. The SEC, however, will closely monitor operational issues in the fund industry in late December and early January, said Gene Gohlke, associate director of the SEC's office of compliance, inspections and examinations. A spokesperson for the SEC declined to comment on criticisms of the agency's planned reporting requirements.

SEC officials have told fund companies that their reporting request is part of an effort both to oversee fund operations and to make periodic reports to the President's Council on Year 2000 Conversion, according to fund executives. The President's Council then is expected to make updates available on Y2K progress to the media in late December and early January, according to a flow chart from the SEC. Mutual Fund Market News obtained a copy of the flow chart and a portion of the SEC questionnaire.

Fund executives praised the plan to keep the public updated on Y2K progress in the first few days of the year. The plan is worthwhile because public pronouncements about the reliability of the financial services industry will reassure mutual fund shareholders, executives said.

But the SEC's reporting requirements for the first few days of the year are excessive, according to mutual fund executives and consultants who spoke on the condition that their names not be used. For example, fund companies have been asked to assess some systems before they are up and running on Monday, Jan. 3, a largely meaningless exercise, executives said. And the reports call for great detail in some sections, some fund executives contend. For example, one question about communication links with vendors, markets and others requires a response to 16 yes/no items and calls for additional written explanations in some cases.

The SEC deadlines of 8 a.m., noon and 6:30 p.m. also present an operational headache in responding on time with accurate information, executives said. Even if fund officials are able to complete the forms on time, it seems unlikely that SEC examiners will be able to assess the volume of material fund companies send the agency, executives said.

"The general idea is a great one but the way they're going about it makes it difficult for fund companies to respond," said the top Y2K executive at one large fund company.

If predictions are correct, however, the SEC's close oversight may prove to be only an inconvenience for the fund industry. The mutual fund industry is well prepared for Y2K, according to the Investment Company Institute. In addition to the preparations of individual fund companies for Y2K thus far, the ICI has established a communications center for Y2K issues, Matthew Fink, ICI president, and John J. Brennan, ICI Chairman, told U.S. Rep. John Dingell (D-Mich.) in a letter last month. The center, which is part of the fund industry's contingency plans to deal with any Y2K problems, will be in operation from Dec. 29 to Jan. 7, Fink and Brennan said in the letter.