Fed Looking At Current Bond Settlement Process

November 27, 2002 (PLANSPONSOR.com) - The Federal Reserve has convened a private-sector working group to look into possible risks facing the structure of the clearing and settlement systems for US government securities, according to a Dow Jones report.

The group is being assembled in response to comments made on a White Paper issued this spring by the Fed and the Securities and Exchange Commission. Comments on the White Paper suggested looking at the current clearing system, instead of embarking on a complete overhaul.  

Currently two banks, Bank of New York and JP Morgan Chase, handle all of the clearing and settlement for government securities. The two banks are unable to share data in the current system, which led to bond market disruptions following the terrorist attacks of September 11, 2001.

“The working group will explore ways the two major clearing banks could substitute for each other if the services of either were interrupted or terminated,” the Fed said.

Chaired by Deloitte Consulting senior advisor Michael Urkowitz, the group will consist of officials from broker-dealers, trade associations, the current clearing banks and the Government Securities Clearing Corporation.

Additionally, staff from the Treasury Department, Fed and SEC will work closely with the group as observers and technical advisors.

Recommendations by the group are expected before the end of 2003.

Bank of New York has already laid out  a contingency plan for their financial operations .  The plan is designed to handle a disaster even larger than the 9/11 terrorist attacks, which caused significant disruptions in their entire operations, leading to the disruption in the overall government bond market.