Wall Street terror-response plans under scrutiny
Saturday, February 15th, 2003.
WASHINGTON (AP) - Wall Street needs to do more to ensure financial markets can recover quickly from a terrorist attack, according to the investigative arm of Congress.
The General Accounting Office issued a thick report concluding that banks, brokerage firms, exchanges and clearing firms need to make improvements in disaster-recovery planning.
Regulators, including the Securities and Exchange Commission, need to take an active role since long delays in reopening markets after a catastrophe could harm the economy, the GAO said in testimony Wednesday to a House Financial Services subcommittee.
Wall Street firms have made numerous changes since terrorist attacks toppled the World Trade Center towers on Sept. 11, 2001, and shuttered stock markets for nearly a week, industry members and regulators testified.
"We are much better off today than we were on Sept. 11," SEC deputy market regulation director Robert Colby told the subcommittee. Nevertheless, he agreed much work still needs to be done to improve the industry's disaster-recovery plans.
Davi D'Agostino, the GAO's financial markets director, recommended the SEC mandate participation in an existing, voluntary computer-review program and ensure enough brokers would be able to trade after a disaster.
The SEC opposes requiring brokers to resume trading after a disaster. Colby said brokers have plenty of business incentives to restore operations after a catastrophe, but the decision should be their own, not the federal government's.
Industry members said they are working aggressively to improve disaster-recovery systems. The New York Stock Exchange has expanded its backup systems and modified its computers to trade the top 250 Nasdaq stocks, NYSE President Robert Britz testified. He said testing of backup systems will wrap up by midyear.
While the first line of defense for markets is their own backup systems, other markets can pitch in if necessary, Nasdaq Stock Market President Richard Ketchum said. He told lawmakers that Nasdaq is prepared to trade NYSE-listed stocks, on a temporary basis, if an emergency closed the Big Board.
Nasdaq's application to become a full-fledged stock exchange, which has been under review by the SEC for several years, was raised by lawmakers during the hearing.
Colby, of the SEC, called the review "a monumental enterprise" that raised many "practical, legal and policy concerns" for regulators. He said SEC staffers now are focused on a small handful of issues and expect to take up the matter with William Donaldson, once he replaces Harvey Pitt as chairman of the regulatory agency.