Year 2000 Statement

September 2, 1999 SEC-BED * MEMORANDUM CIRCULAR NO. 03-99 TO : The Philippine Stock Exchange (PSE) The Philippine Central Depository, Inc. (PCDI) The Securities Clearing Corporation of the Philippines (SCCP) The Philippine Association of Stock Transfer & Registry Agencies (PASTRA) The Investment Houses Association of the Philippines (IHAP) The Investment Companies Association of the Philippines (ICAP) All PSE Member-Broker/Dealer All Other Broker/Dealers All Transfer Agents All Investment Houses All Investment Company Managers/Advisers SUBJECT : Year 2000 Statement WHEREAS, the Commission on 06 October 1998 issued Memorandum Circular No. 9, Series of 1998 re: Year 2000 ("Y2K") compliance. In furtherance thereof, the Commission finds it urgently necessary to enjoin the above-named market players to become Y2K ready before the turn of the century in order to maintain investors trust and confidence in the Philippine economy; LexLib WHEREAS, pursuant to R.A. 8747 otherwise known as the "Philippine Year 2000 Disclosure and Readiness Act", the Commission, in accordance with its mandate to protect public interest and the investing public, shall assist the Presidential Commission on Year 2000 Compliance in its awareness drive; and WHEREAS, it is imperative to address the apprehensions that prospective and current clients may have towards these market participants should they not be Y2K prepared in relation to the following issues: a) the risks to clients, b) projected operational losses; c) contingent liabilities or civil damages, and d) business as a going concern. In view thereof, The PSE, PCDI, SCCP, all securities brokers/dealers, transfer agents, investment houses and investment company managers/advisers are hereby ORDERED to submit a Year 2000 Statement to the Commission in accordance with the following form and contents: 1. Form The statement shall be in a form of Discussion and Analysis. 2. Contents The Discussion and Analysis shall contain the following: a) State of readiness Every market participant should describe the Year 2000 issues in sufficient detail to allow clients to fully understand the challenges that it faces. The market participant shall discuss its internal Y2K readiness such as its own software and hardware including non-IT systems typically to include embedded technology such as microcontrollers; where it is in the process of becoming ready for year 2000 (progress by phase, including time table for completion of each phases), and the Y2K readiness of its suppliers and clientele. Further discussion shall also include any owned or leased machinery and equipment it utilizes with embedded microchips. b) The costs incurred to address Year 2000 issues Every market participant must disclose material historical and estimated costs of remediation. This includes costs directly related to fixing Year 2000 issues, such as modifying software and hiring Year 2000 solution providers. In most cases, the replacement cost of a non-compliant IT system should be disclosed as an estimated Year 2000 cost. This is true even if the market participant had planned to replace the system and merely accelerated the replacement date. The market participant need not include the replacement cost as a Year 2000 estimated cost if it did not accelerate the replacement due to Year 2000 issues. c) The risks of Year 2000 issue Every market participant must include a reasonable description of its most reasonably likely worst case Year 2000 scenarios. The essence of this topic is whether the consequences of a known event, trend, or uncertainty are likely to have a material effect on the market participant's operations, liquidity, and financial condition. In case the market participant does not know the answer, this uncertainty must be disclosed, as well as the efforts made to analyze the uncertainty and how it intends to handle. For example, it must disclose estimated material lost revenue due to Year 2000 issues, if known. d) The contingency plans Every market participant must describe how it is preparing to handle the most reasonably likely worst case Year 2000 scenarios. This information will help clients evaluate the company's Year 2000 exposure by answering the important question what will it do if it is not ready? Under this category of information, the market participant must describe its contingency plans. In this case, if there is no contingency plan adopted yet, such should be disclosed or that it intends to create one, and the timetable for doing so. Such plans should cover alternative business sites, energy sources, and the means whereby the entity could continue its business. The plans should focus principally on mission critical business operations, and the ability of the regulated entity to transfer customer accounts to firms that can provide the same or equivalent services. Contingency and continuity plans should detail the circumstances and dates for implementation. Testing and validation of contingency and continuity plans should also be considered. e) Other suggested disclosures, if applicable, i) As of the end of each reporting period, disclose how much of the total estimated Year 2000 project costs have already been incurred. ii) Identify the source of funds for Year 2000 costs, including the percentage of any IT budget used for remediation. This allows the Commission and the PSE/PASTRA/IHAP/ICAP to determine whether Year 2000 project costs have already been incurred. iii) Explain if other IT projects have been deferred due to the Year 2000 efforts, and the effects of this delay on financial condition and results of operations. iv) Describe the use of any independent verification and validation processes to assure the reliability of their risk and cost estimates. The use of independent verification may be particularly important in the testing phase. v) Use of chart to provide Year 2000 disclosure. A chart may help clients track a market participant's progress over time, as it is updated, and make peer comparisons based on the same data. In addition, a chart can reduce lengthy Year 2000 disclosure that otherwise may overwhelm other disclosure. vi) Include a breakdown of the costs, such as disclosure of costs to repair software problems, and costs to replace problem systems and equipment. All securities broker/dealers, transfer agents, investment houses, and investment company managers/advisers are required to provide a copy of their Year 2000 Statement to their existing clients on or before 20 September 1999 and to any prospective clients between this date and 01 January 2000. Likewise, all member brokers, transfer-agents, investment houses, and investment company managers/advisers are likewise required to submit the Y2K Statement to the PSE, PASTRA, IHAP and ICAP, respectively. A contract unit/person shall be assigned by the respective association for whom members can address their concerns. The PSE/PASTRA/IHAP/ICAP, in turn, are hereby required to examine the Year 2000 Statements submitted by their members and to advise this Commission and any member whose preparedness is found to be inadequate. Likewise, the PSE/PASTRA/IHAP/ICAP shall submit a report to the Commission on the overall compliance of its members by 30 November 1999. The Year 2000 Statement shall be signed by the President or the Chairman of the Board and must be notarized. The Year 2000 Statement report as of August 31, 1999 shall be submitted on or before September 15, 1999 while the Year 2000 Statement report as of October 31, 1999 shall be submitted on or before November 15, 1999. 3. Exemption Any market participant who wishes to apply for exemption shall file a written request for exemption from this circular with the Commission indicating the reason/s therefor within ten (10) days from the effectivity of this circular. The Commission, upon its own discretion may grant or deny such request. 4. Penalty Late filing or non-compliance herewith shall be a ground for the imposition of a fine in the amount of fifty thousand (P50,000.00) pesos as basic penalty; and additional five hundred (P500.00) for every day of delay in filing thereof, without prejudice to other sanctions against the market participant and its officers and directors as may be allowed by existing laws, rules and regulations. LexLib 5. Effectivity This Circular shall take effect immediately. (SGD.) DANILO L. CONCEPCION Associate Commissioner