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National Association of Securites Dealers, Inc.

National Association of Securites Dealers, Inc. Year 2000 Program Presentation to Global Benchmarking Council March 3-5, 1999. Presentation Overview. Program Overview and Structure 1998 Milestones and Lessons Learned 1999 Focus: Communications Business Continuity Planning

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National Association of Securites Dealers, Inc.

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  1. National Association of Securites Dealers, Inc. Year 2000 Program Presentation to Global Benchmarking Council March 3-5, 1999 NASD Confidential Y2K Executive Steering Committee

  2. Presentation Overview • Program Overview and Structure • 1998 Milestones and Lessons Learned • 1999 Focus: Communications • Business Continuity Planning • NASD Regulation Membership • Broker/Dealer Education • Membership and Industry Preparedness • Broker/Dealer Testing • NASD, NASD Regulation & Nasdaq Testing • Integration Testing • Industry Testing • Investor Education and Public Confidence Program March 4, 1999 NASD Year 2000 Program 2 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  3. NASD Year 2000 Program • NASD and it’s subsidiaries formed joint Year 2000 Program in early 1996 • Decentralized business line execution with centralized oversight and reporting • Governance provided by Year 2000 Executive Steering Committee • Senior management participation; formal policies and procedures; reporting and communications mechanisms • Inventory includes more than 11 million lines of code in mainframe systems, mid-range and desk-top platforms • Total estimated NASD Year 2000 costs: $36 million • Ongoing reviews and audits from internal and external review organizations March 4, 1999 NASD Year 2000 Program 3 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  4. Y2K Program Office • Policies & Procedures • Industry Best Practices • Industry Liaison • Program Success • Risk Analysis • Management/Board Reporting • Major Issue Management • Key Process Management • Program Financials • Business Contingency Planning • Staff Retention & Compensation • Assessment • Contact: Bill Bone • Certification & Contingency • Planning • Inventory Control and Analysis • Software/System Renovation • Computing Infrastructure • Facilities Renovation • 3rd Party Applications/Vendor • Management • End User Computing • Metrics Capture & Reporting • Contingency Planning • Contingency Plan Tests • Contact: Bill Sickenberger • Audit & Program Review • Participate & Respond to Audits • by Internal Review, external • auditors, and industry regulators • Insurance Analysis • Industry Legal & Regulatory • Participation • Management & Audit Committee • Reporting • Contact: Bill Bone • Year 2000 Testing • Integration Testing • Business Systems • Computing Infrastructure • Facilities Related Systems • Recertification of Renovated Soft/Sys. • Industry Test Execution/Coordination • External Testing • Test Scenarios • Execution and Reporting • External Contact Management • Metrics Capture & Reporting • Contact: Bill Sickenberger • Membership Support Services • Member Firm Awareness and Education • Member Information Collection & • Disclosure • Member Analysis • District Examination Support • Joint Management of Regulatory • Functions with the SEC, AMEX, NYSE • International Firm Management • Contact: Lyn Kelly • Communications Center • Management Reporting (Board, ESC, • IAC, SEC, GAO) • Year 2000 Articles for Nasdaq, NASD • & NASD Regulation publications • External publication articles • Brochures, flyers, notices, media • Library Management • Third Party & Vendor Response Letters • Y2K Web Site Content Management • Investor Education Program • Internal Awareness & Education • Contact: Martha Manco Program Scope March 4, 1999 NASD Year 2000 Program 4 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  5. 1998 Milestones Remediation, Replacement & Certification • NASD, NASD Regulation, Nasdaq Application Remediation: 100% Complete • Total number modules remediated: 14,010 • End User Computing (Mission Critical): 100% Compliant • Facilities - 95 Components: 96.8% Compliant • Vendor Hardware Products (64): 100% Compliant • Vendor Software Packages (159): 92.5% Compliant March 4, 1999 NASD Year 2000 Program 5 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  6. 1998 Lessons Learned Remediation, Replacement & Certification • Requires a fundamental strategy: Planning, Baseline Schedule, Track/Measure against the Baseline Schedule • Third Party Vendors • Approach early and often - vendor/product status may change • Test when available • Establish contingencies for mission critical - know the trigger points • Work closely with vendors - help them where possible • Benefits • Documentation of all systems and methods • Provided enterprise view of systems & interfaces • Accurate inventory of all internal & external applications • Cleaned house of applications taking space but not in use • Opportunity for replacing/upgrading - selection of best product for replacement March 4, 1999 NASD Year 2000 Program 6 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  7. 1998 Milestones Membership Support Services • Education & Awareness Activities • Workshops & Seminars Conducted: 80 • Year 2000 Publications to Members: 40 • Call Center - Member Assistance, Information & Analysis • Incoming Call Volume: Peak - 350 per day; Non-peak - 30 per day • Outgoing Calls to Members: 5,594 total calls made in 1998 • Member Analysis - Ready for 2000? • Clearing Firms: 100% • Market Makers: 100% • Introducing Firms: Top 20% • Member Reports Received, Processed & Filed: 11,000 March 4, 1999 NASD Year 2000 Program 7 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  8. 1998 Milestones Communications & Administration • Education & Awareness Activities • Workshops & Seminars Conducted: 84 • Year 2000 Publications: 124 • Members: 40 • Investors: 20 • Internal / External: 26 • Reports: 38 • Program Office & Membership Support Services Library Files Maintained: 30,000 • Responses to Compliance Inquiries: 2,616 Letters Mailed • 1998 Audits Completed: 5 March 4, 1999 NASD Year 2000 Program 8 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  9. 1999 Focus - Business Continuity Planning Business Continuity Planning Program • Mission • To provide the program organization and processes to ensure continuity of critical business functions and services which may be lost because of failures induced by Year 2000 date-related malfunctions. This mission is in support of NASD, its subsidiaries, member firms, the SEC, and other industry participants. • Scope • Applies to the conduct of Year 2000 Business Continuity Planning and Operations by the NASD corporate staff and NASD companies. It includes establishing and managing relationships with government and industry entities. March 4, 1999 NASD Year 2000 Program 9 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  10. 1999 Focus - Business Continuity Planning Business Continuity Plan Definition • Business Continuity Planning provides solutions which will be automated, manual, or a combination of both and will not involve failed system components. • Technology Disaster Recovery Plans and Business Continuity Plans are complimentary and must be fully coordinated. • Technology Disaster Recovery Plans are aimed at restoring systems to their intended function in priority order. • Business Continuity Plans should not assume that Disaster Recovery was successful. March 4, 1999 NASD Year 2000 Program 10 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  11. 1999 Focus - Business Continuity Planning Organization & Governance March 4, 1999 NASD Year 2000 Program 11 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  12. 1999 Focus - Business Continuity Planning Strategy • SEC/SRO agreement on high-level event responses • Coordination of high-level event responses with SIA • Decentralized business unit planning; central Program Management oversight and reporting • Separate Business Continuity plans and test plans (dress rehearsal) • Plan for hierarchy of Command Center Structure • Technology and support services integral to business directed planning team • Each Business Unit Business Continuity Plan will include: • Business Continuity Readiness kits • Business Continuity Events/Scenarios Plans • Ownership for planning cannot be outsourced • Use worst case scenarios • Employ SWAT Teams (internal/external), if applicable March 4, 1999 NASD Year 2000 Program 12 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  13. PROCESSES Reports, Requests Year 2000 Program Office Corporate Governance Decisions Direction, Decision Policy, Guidance, Reporting, Assistance Business Line Continuity Planning Teams Prod. Services Rep. Technology Services Rep. Business Experts Admin. Services Rep. Other Third Party Rep. 3rd Parties 1999 Focus - Business Continuity Planning Strategy • Centralized Program Management and Reporting (Year 2000 Program Management Office) • Decentralized planning and execution chaired by business units and co-led with Technology Services. This includes participation by Production Services and Administrative Services March 4, 1999 NASD Year 2000 Program 13 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  14. Policy and Guidance • Process Management • Program Plan • Template for Business Units • Committee Coordination • Training • Industry Liaison • Consultation (internal/external) • Testing • Budget • Issues Management • Progress Reporting • Business Continuity Operations • Planning • Business Continuity Planning Committees • Business Continuity Planning Teams • Business Continuity Planning • Metrics/Reporting • Mission Critical List • (Applications, Services, Facilities) • Risk Analysis • Cost Estimation • Establishment of Controls • Recovery Operations • Business Continuity Planning Training • Test Plans • Testing • Company Level Command Center 1999 Focus - Business Continuity Planning Business Continuity Management & Planning Roles & Responsibilities Program Office Each Company March 4, 1999 NASD Year 2000 Program 14 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  15. I finished the BCP ! Aren't I finished? Business Continuity Plan Document Conduct Business 7 Continuity Operations January 2000 7 Assure Facilities & People Define Recovery Solutions in Place 6 6 Update BC Plan Establish Controls 5 5 Conduct BC Training Conduct Risk Analysis 4 4 Test BC Plans (dress Create BCP Team rehearsal) 3 3 Review Priorities/Complete Create Test Plan Mission Critical List 2 2 No, you're not finished! You are just getting started! Set-up Business Continuity Business Planning Committee Continuity 1 Plan Document 1 1999 Focus - Business Continuity Planning March 4, 1999 NASD Year 2000 Program 15 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  16. 1999 Focus - Business Continuity Planning Operations in the Year 2000 Concepts • Corporate Command Center Structure • Assured communication with NASD Companies, Industry, and Government • Representatives from business, technology and support organizations • Each company will operate a Response Center reporting to the Corporate Command Center • Additional Company Subordinate Response Centers if required • SWAT Teams managed at company level; current status reported to Corporate • All failures and outages managed by Company Response Centers; reported to Corporate Command Center • Media contacts are managed at the Corporate Command Center March 4, 1999 NASD Year 2000 Program 16 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  17. Nasdaq Response Center Amex Response Center NASDR Response Center District Response Ctrs. Issuer Services Field Response Ctrs. 1999 Focus - Business Continuity Planning Command Center Structure President’s Council On Year 2000 Operations in Year 2000 SEC Command Center NASD Representative NASD, Nasdaq Amex, NASDR Corporate Command Center SIA Command Center Staff Business Operations Media Relations Technology Regulation Logistics Other FRB Communication Desks SIPC Nasdaq Desk AMEX Desk NASDR Desk Nasdaq International Response Center March 4, 1999 NASD Year 2000 Program 17 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  18. 1999 Focus - Business Continuity Planning Lessons Learned • Business Continuity Planning must be top-down supported • Financial and human resources must be allocated • Business units must drive the planning process - technology provides support • Must become a priority activity for each business unit - cannot be “oh by the way, let’s put some plans in place “ • Specialized facilitation must be provided to business units - they know their business, but not necessarily how to plan for contingencies • Centralized oversite for consistent approach and integrated plans • Plans must be tested - dress rehearsals conducted March 4, 1999 NASD Year 2000 Program 18 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  19. 1999 Focus - Membership Readiness The NASD Regulation Membership Support Services Program is designed to assist members in preparing for the Year 2000 • Education and Awareness • Publications • Education Workshops • Membership Information Collection and Disclosure • Membership Reports • Examinations • Membership Analysis • 100% Clearing Firms, Market Makers & 20% Composite of Introducing Firms • Other Activities • District Coordination and Industry Participation and Leadership March 4, 1999 NASD Year 2000 Program 19 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  20. EDUCATION AND AWARENESS Publications:NTM, RCA (Monthly) and CRD (Quarterly) SIA Conference SIA Conference SIA Conference SIA Conference Spr. Securities Conference Fall Securities Conference Reg - Tech Symposium Spr. Securities Conference Fall Securities Conference Education Workshops Mandatory Education SEC Reports Q&A Best Practices - Legal, Contingency Planning, End User SEC Reports Q&A Best Practices - Planning Educational Topics - NTM MEMBERSHIP INFORMATION COLLECTION AND DISCLOSURE 4 Membership Reports Web Disclosure Mandatory Testing SEC BD-Y2K Report #2 SEC BD-Y2K Report #1 NASD Survey Exam Module Exam Procedure & New Member Application Y2K Readiness Exams of Identified Firms Onsite Reviews & Interviews MEMBERSHIP ANALYSIS 100% Clearing Firms, 100% Market Makers & 20% Composite of Introducing Firms OTHER ACTIVITIES District Coordination & Industry Participation and Leadership Contingency Planning Business Scenario Define SWAT Perform Finalize Day Conduct Execute Awareness Development Teams Simulations Zero Strategies Rehearsals Strategies 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1998 1999 G:\Depts\Y2K\Common\Y2K Communications\Membership Support Services\NASDR Strategy cht-Jan.99. Updated1/28/99 1999 Focus - Membership Readiness March 4, 1999 NASD Year 2000 Program 20 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  21. 1999 Focus - Membership Readiness Year 2000 Membership Support Services 1999 Education & Awareness Program March 4, 1999 NASD Year 2000 Program 21 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  22. Proposed MSS- 1999 Virtual Workshops Risk Management and the State of the Industry- National Broker/Dealer and Global View Mandatory Testing Investor Communication Best Practices Contingency Planning - The view State of the Utiltities and other Contingency Planning - large firms Internal Testing for 1999 and firms of all sizes critical services Contingency Planning - small firms Peer Review of Best Practices Investor Relations Legal Review State of the Utiltities and other critical Legal Workshop Operational Guidelines for all Firms Beyond Year 2000 services Audit, Agreed Upon Procedures and BDY2K for Small firms Examinations Contingency Strategies for Clearing BDY2K for Large firms Exchanges and Utililies Update Firms Contingency Strategies for Mandatory Testing Introducing Firms Certification of Y2K Compliance MSS-On-site Education Workshops Y2K Overview Part 1:BDY2K review Y2K Overview Part 2: Contingency Planning Conference Participation/ MSS Speaking Engagements Fall NASDR Securities Conference NASDR Sprig Securities Conference SIA Conference 1999 Focus - Membership Readiness March 4, 1999 NASD Year 2000 Program 22 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  23. 1999 Focus - Membership Readiness Member Analysis March 4, 1999 NASD Year 2000 Program 23 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  24. Oct Dec Jan Feb Mar Apr May Jun Jul Aug Sept Nov Industry Cycle Test Define Metrics Weekly Reporting Determine Metrics Bi Weekly Reporting Industry Cycle Tests Point-to-Point Testing 1999 Focus - Membership Readiness Mandatory Testing 1999 Education Virtual Workshops SIA Industry Cycle Seminar MandatoryTesting Special Notice to Members Nasdaq RTC Mandate Industry Cycle Mandate Amex Integration Mandate Testing Nasdaq Point-to-Point Testing Nasdaq Regulation Point-to-Point Testing Industry Cycle Testing Reporting Point-to-Point Testing Enforcement March 4, 1999 NASD Year 2000 Program 24 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  25. 1999 Focus - Testing • January 1999 - April 1999 • Continue preparation for industry-wide testing • Perform industry-wide test • Continue external testing with customers • Internal re-certification • May 1999 - December 1999 • Internal re-certification • Continue customer unit testing • Market data vendor testing • Quarterly Integration testing • Dedicated environment • System dates changed on all platforms • Full regression testing • Date specific for newly certified apps March 4, 1999 NASD Year 2000 Program 25 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  26. 1999 Focus - Testing March 4, 1999 NASD Year 2000 Program 26 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  27. INDUSTRYWIDE TEST TRANSACTION FLOW P A R T I C I P A N T S MARKETS NYSE AMEX NASDAQ CBOE CSE BSE CHX PCX PHLX OPTIONS EQUITIES CORPORATE BONDS MUNICIPAL BONDS OPTIONS OCC TRADES EXECUTED NSCC UITs MUTUAL FUNDS EXERCISE EQUITY OPTIONS TRADES CONFIRMED AND CLEARED DTC TRADES SETTLED 1999 Focus - Testing March 4, 1999 NASD Year 2000 Program 27 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

  28. Orders/Executions Street-Side Process Flow for Industry-Wide Testing NYSE • Merged Order Logs • Limit Order Rec. • Orders/Executions AMEX • Merged Order Logs • Limit Order Rec. • Option Contracts • Orders/Executions NASDAQ • Trade RECAPS NSCC/SIAC MEMBER FIRMS DTC • Fixed Income, QSR, • Correspondent Clring • Index Products, OTC, • Mutual Funds NSCC Direct Submission • Equity Contracts - NYSE, Amex • & OTC • Fixed Income Contracts, Corps, • Munis & UITs • Index Products • Regional (RIO) & • Prime Broker ID • Correspondent Clearing • CNS Settlement Activity • Reporting • Mutual Funds • Settlement • Institutional Delivery • MMI Processing OCC • Data Service • Risk Reporting • SAR Reports • Orders/Executions CBOE, PHLX, CHX PCX, CSE, BSE • End of Day Files DTC • Prime Broker ID 1999 Focus - Testing March 4, 1999 NASD Year 2000 Program 28 “This document is a Year 2000 disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.”

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