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ASX announcement - ASX Year 2000 Disclosure

29 March 1999

"Has your company’s assessment of its potential exposure to the Year 2000 problem changed materially from what the market has previously been told? If it has, your response should describe the change."

No.

(Prior to ASX becoming a listed entity, ASX advised listed entities in March 1998 of its potential exposure to the Year 2000 problem ("March 1998 ASX Year 2000 Status"). Following this, information was also included in ASX’s Listing Information Memorandum and a further disclosure was made by ASX on 22 December 1998 ("December 1998 Disclosure"))

"Has your company initiated any material action to address the Year 2000 problem beyond actions previously disclosed to the market or does it propose to initiate any such action ? If it has, your response should describe the action."

No.

"Please provide details of your company’s progress in relation to its activities to address the Year 2000 problem, including the date by which your company expects to have completed those activities."

The focus of ASX’s activities continues to be the systems and services that support its critical services.

Overview:

As advised in the December 1998 Disclosure, ASX’s main business is to facilitate and operate secondary markets in equities and exchange-traded options. The prime focus of ASX’s Year 2000 activities remains on the information technology (IT) systems (and their associated support products and services) that deliver its critical business services.

As also previously advised, the ability of ASX to deliver these services to its customers is dependent, in part, on the availability of correctly functioning services provided by other organisations (eg electricity utilities, telecommunications service providers and building management services providers).

The December 1998 Disclosure explained the definition of Year 2000 readiness used by ASX . For the sake of completeness, this definition has again been set out below. The December 1998 Disclosure also included an update on ASX’s Year 2000-related activities, the estimated project cost as well as a summary Year 2000 status of each of the following areas:

• ASX operations;
• external dependencies;
• ASX Year 2000 business continuity planning; and
• estimated Year 2000- related costs. A re-assessment of the total Year 2000 project cost has resulted in a reduction from an estimated $A 12.5 million, as described in the listing information memorandum, to a current estimate of $A 10.2 million (as at 31 October 1998).
  

An update on this information has been included.

Definition of Year 2000 Readiness Used by ASX
Unfortunately, there is not one single definition of the term "Year 2000 compliant". Consequently, the ASX has decided to use the term "Year 2000 ready" to avoid misunderstanding.

If ASX states that an ASX system or service is Year 2000 ready, it means the following:

"The system or service has undergone an internal review process. In addition, as a minimum, each critical ASX application has been (or will be) tested using an appropriate set of representative dates. On the basis of this review, and any associated test results, ASX assesses that the risk of a material failure of the system or service as a result of a date processing problem is not significant."

The ASX uses the British Standards Institution's Year 2000 compliance rules as described in PD2000-1:1998 as a guide only in determining what, if any, remedial action should be carried out. Summary details on PD2000-1:1998 are available on the ASX internet site, ASX ShareNet.

ASX believes that a strict interpretation of PD2000-1:1998 Rule 1 could imply that every possible value for current date must be tested to guarantee that "no value for current date will cause any interruption in operation". ASX does not believe it is practical to adopt such an approach and therefore cannot guarantee its systems’ operations. Rather, ASX uses appropriate sets of representative dates to test its critical systems. It is the successful completion of these tests that enables ASX to determine that the risk of failure of its systems is not significant.

ASX Operations:

Overview of Problems Found to date with Critical Systems
As of 26 March 1999, testing of ASX critical applications has so far revealed a small number of Year 2000 problems and issues. By way of example, the following table indicates the scale of Year 2000 problems found with four of ASX’s critical applications. The "Number of Year 2000 Problems Found" encompass both critical and non-critical problems and issues. The "Estimated Number of Lines of Application Code (excluding comments)" refers to the number of lines of source code - and excludes all system software and utilities that may be used by the application.

This information has not altered since the December 1998 Disclosure.

Status of Critical ASX Systems

The status of the testing and other activities for ASX’s critical systems is summarised in the following table.

ASX System Infrastructure

As advised in the December 1998 Disclosure, the objective of the ASX Year 2000 (Y2K) System Infrastructure project is to ensure that all "IT Infrastructure" associated with supporting ASX business functions is Year 2000 Ready. The project covers approximately 6,000 items of computer inventory. Given the scale and type of the activities involved it has been split into sub-projects. The status of each sub-project is set out in the following table.

Non-IT Systems

As advised in the December 1998 Disclosure, from ASX’s perspective, non-IT systems refers to:

i). systems that are used to monitor and control the environments in the various premises occupied by ASX around Australia. Examples of non-IT systems are security systems, air conditioning and fire monitoring systems.

ii). Year 2000 testing (and associated remedy, where required) has been divided into two stages. The first stage involves Year 2000 testing of each critical non-IT system in isolation ("unit testing"). The second stage involves an integrated test of each premise’s systems, which involves testing the interfaces that operate between:

• the ASX data centre (where relevant)
• those parts of the building that ASX occupies and/or uses and
• relevant base building infrastructure.

The following table summarises the current testing status.

iii). faxes, photocopiers and ancillary office equipment. As advised in the December 1998 Disclosure, following a six month review, ASX has determined that the most cost-effective action is not to remedy (where relevant) its inventory of faxes and photocopiers, as the associated business risk of Year 2000-related fax and photocopier problems is not considered to be significant. However, to reduce any associated business risk or interruption, a small number of new faxes and photocopiers will be installed at ASX sites, prior to 2000.

Medium Priority Systems

As advised in the December 1998 Disclosure, this refers to systems that are not essential to the operation of ASX's critical systems. However, ASX has a significant dependence on these systems. The following table summarises their current status. 

Low Priority Systems

As advised in the December 1998 Disclosure, this refers to systems that have been assessed as having a low impact on ASX if they are not Year 2000 ready. In the main, these systems are Personal Computer (PC)-based and perform a support function.

Currently, the low priority applications are being reviewed, on a case by case basis, to determine what action, if any, will be taken.

Estimated Cost

The information on estimated costs has not altered since the December 1998 Disclosure.

The forecasts provided in the December 1998 Disclosure will be re-assessed, once the cost impact of the ASX business continuity planning and Industry Test activities have been determined.

"Are there areas of your company's activities where, in your company's assessment, material Year 2000 risks will remain after the company's activities to address the Year 2000 problem are completed ? Examples might include dependencies on third parties such as utilities. If there will be remaining risks, your response should describe them."

ASX's response has not altered from the response on this issue given in the December 1998 Disclosure.

Action taken to minimise these material Year 2000 risks:
ASX's contingency plans are described in ASX's response to the next question. In addition, ASX has been and is continuing to take certain steps to deal with these material risks. These are:

Participating Organisations: Year 2000 Self-Assessment
As advised in the December 1998 Disclosure, in early 1998, ASX surveyed broking organisations' Year 2000 readiness. Following this, broking organisations were required to complete a Year 2000 self-assessment. This self-assessment form was despatched to all broking organisations (and a selection of non-broking organisations) in August 1998.

A high-level analysis of the broking organisations' responses has been carried out. ASX Participant Services plans to follow up Year 2000 progress with relevant broking organisations. This task is scheduled to be completed during April 1999.

ASX Year 2000 Test Facilities

ASX continues to make available to ASX's participating organisations, Year 2000 test environments for CHESS and SEATS. As also previously advised in the December 1998 Disclosure, successful use of either test facility by a test participant (or system vendor) however, does not imply that the testing organisation's system is Year 2000 ready.

External Infrastructure

As advised in the December 1998 Disclosure, ASX is dependent on components of external infrastructure (eg power and telecommunications services) to provide its critical services. As part of its Business Continuity Plan, ASX is considering what action (if any) will be taken to contain or reduce ASX's exposure to these external risks.

Industry test

As advised in the December 1998 Disclosure, ASX is co-ordinating an industry test of common equity and exchange-traded option transactions. This test, involving a representative set of industry organisations (ie ASX, and representative broking organisations, CHESS non-broker participants, a major registry processor and CHESS payment banks), will test the ability of these organisations to transfer the correct electronic messages to and from ASX, in a basic Year 2000 environment. The equities industry test is scheduled to commence in April 1999, with the exchange-traded options test due to commence in August 1999.

In the Australian equities market, many broking organisations use back-office systems that are provided by relatively few vendors. For the equities industry test, the broking organisations were selected to ensure that all major vendors back-office systems are represented in the test. A similar approach will be adopted for the exchange-traded options’ industry test.

Legal Issues

In assessing its potential legal liability, ASX continues to review its contracts with critical suppliers and its customers. In particular, ASX is, where appropriate, negotiating for Year 2000 provisions to be included in contracts.

ASX's Business Rules and Securities Clearing House Business Rules have been reviewed. Proposed Rule amendments have been lodged with the Australian Securities & Investments Commission. The Rule amendments are intended to provide ASX with protection against liability and to place ASX in a reasonable position to deal with Year 2000 issues in the context of its regulatory role.

"Please describe your company’s contingency plans in relation to Year 2000 issues."

Overview

The Overview and information on Critical Business Requirements has not altered since the December 1998 Disclosure. For the sake of completeness however, ASX has chosen to set this information out again below.

ASX has business continuity plans in place for each of its critical systems. In addition, ASX is part way through a three year plan to improve the integrity of its Business Continuity Plan (BCP). The plan commenced at the beginning of 1997 and will be completed in 2000.

Alongside these improvements, ASX is reviewing these plans with respect to the Year 2000 issue. From a Year 2000 perspective, the focus of ASX’s BCP activity will be on the provision of its critical services. Although one of the goals of the BCP will be to reduce ASX’s dependence on its critical suppliers, ASX cannot guarantee that its critical services will not be interrupted. For example, a critical telecommunications service, provided by a supplier, may be unavailable for an extended period of time. As a consequence, it may be impractical to provide a critical ASX service, until the telecommunications service is restored.

Critical Business Requirements

To ensure that the BCP activities are focussed on providing continuity of ASX’s critical services, ASX has identified, for each of these services, a set of minimal, business requirements.

Currently, ASX is examining how its ability to meet these requirements may be impacted by events that occur around the 1999 to 2000 transition period. This requires an assessment of:

• the risk of the event occurring, including the timescale involved; and
• the significance of the impact on ASX, if the event occurs.

Taking these factors into account provides an indication of the "probable impact" of the event. The probable impact of each of these events is being analysed to determine whether a fall-back option is feasible, and, if so, cost-justifiable. Work to date suggests that the services outside ASX’s direct control represent the most significant sources of potential impact.

Focus of ASX’s Year 2000 BCP

There has been no substantiative change to this material since the December 1998 Disclosure, but for completeness it has been set out again below.

BCP activities continue to be focussed on the following areas:

• potential failure of suppliers of external infrastructure. For example, power and water utilities, or telecommunications service providers. The main problem in assessing the risk posed by, for example, power utilities is that it is not feasible to obtain a demonstration of Year 2000 readiness prior to end of 1999. ASX’s main short-term exposure is to the providers of water and telecommunications services. ASX has stand-by electricity generators, which will allow it to generate sufficient power for its critical services, for a minimum period of approximately 6 weeks. ASX has an indirect exposure to the failure of public infrastructure. For example, failure of the power utilities may impact the ability of ASX’s major customers to use ASX’s services.
• other suppliers. This includes ASX participant organisations that supply information to ASX as part of ASX’s critical services.
• ASX internal information technology systems/software. Although the critical applications have been tested, and hence the probability of failure is considered to be not significant, their successful operation cannot be guaranteed. Consequently, ASX will consider the most appropriate, cost-effective, mechanism to contain this risk.

ASX has prepared a draft approach for assessing the impact of the Year 2000 issue on ASX’s critical business processes. Currently, this draft approach is being trialled on a critical business service. The BCPs for all relevant business areas are due to be updated (if required) by mid-1999.

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