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Release Date: November 26, 2002

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.

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Last update: November 26, 2002