For immediate release

The Federal Reserve Board announced on Tuesday that it has established a private-sector working group to recommend steps to mitigate risks in the clearance and settlement of U.S. government securities. 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 Working Group has been asked to prepare a final report before the end of 2003. Michael Urkowitz, Senior Adviser to Deloitte Consulting, has agreed to chair the Working Group. The Working Group will include senior representatives of the two major clearing banks (JP Morgan Chase and The Bank of New York), the Government Securities Clearing Corporation, securities dealers, interdealer brokers, custodian banks, The Bond Market Association, and the Investment Company Institute. The other members of the Working Group are: Ms. Mary Ambrecht Managing Director Salomon Smith Barney (Citigroup)   Ms. Deborah Cunningham Senior Vice President Federated Investors   Mr. Frank DiMarco Managing Director Merrill Lynch   Mr. Dennis Dirks Chief Executive Officer Government Securities Clearing Corp.   Ms. Mary Fenoglio Executive Vice President State Street   Mr. Ian Lowitt Global Treasurer Lehman Brothers   Mr. Lawrence Maffia Executive Vice President Investment Company Institute   Mr. Stephen Merkel General Counsel & Executive Vice President Cantor Fitzgerald     Mr. Ernest Pittarelli Managing Director UBS Warburg LLC   Mr. Brian Ruane Senior Vice President The Bank of New York   Ms. Jane Buyers Russo Managing Director JP Morgan Chase   Mr. David Simons Managing Director Goldman Sachs & Co.   Mr. Paul Saltzman General Counsel & Executive Vice President The Bond Market Association     Mr. Thomas Wipf Managing Director Morgan Stanley & Co.   Staff of the Federal Reserve, the Securities and Exchange Commission and the Department of the Treasury will participate in the Working Group as observers and technical advisers. The Federal Reserve, Treasury, and SEC have a particular interest in promoting the smooth and safe operation of the U.S. government securities market given the market's critical role for conducting monetary policy operations, financing government activities, and providing benchmark prices and hedging opportunities for other securities markets. On May 13, 2002, the Board and the SEC issued a White Paper on Structural Change in the Settlement of Government Securities. The White Paper expressed concerns about operational, financial,and structural vulnerabilities associated with the status quo, in which all of the most active market participants are critically dependent on one of two clearing banks for settlement of their trades and financing of their positions. The White Paper requested comment on whether structural change was needed to address the vulnerabilities. The comments urged the authorities to concentrate on mitigating risks within the current structure, rather than considering structural change, at least in the short run. Several commenters suggested formation of an industry group to explore the specific changes that would need to occur to enable the two clearing banks to substitute for each other in the event that the services of either were interrupted or terminated. The formation of the Working Group announced Tuesday is responsive to that suggestion.

2002 Other announcements