Mfr Nara- T8- Bony- Bony Briefing- 10-15-03- 00050

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[Unclassified]

MEMORANDUM

FOR THE RECORD

Event: Meeting with Bank of New York (BONY) Type of event: Briefing Date: Oct. 15, 2003 Special Access Issues: NA Prepared by: Emily Walker Team Number: 8 Location: 101 Barclay Street, NY NY Participants - Non-Commission: Donald R. Monks, Senior Executive Vice President, Operations and Technology; Jeffrey R. Kuhn, Senior Vice President, Operations; R. Jeep Bryant, Managing Director, Global Head of Corporate Communications, Bank of New York Participants - Commission: Emily Walker, Sam Caspersen

The purpose of this meeting at BONY (there will be others) was to discuss the issues BONY faced on 9-11 with the disruption of their facilities and the pursuant impairment of their securities transactions settlement system and connection with the Federal Reserve. GAO wrote a report (GAO-03-468 and related documents) which summarized the situation faced by BONY on 9-11. We asked the BONY officials present at themeeting to send us any comments or corrections or additions to the GAO report summarizing their experience. The reason we asked for these comments was to ensure that whatever we used from the GAO Report actually was verified by thecompany

involved. We plan on including the BONY story in our final report.

In addition, we asked the officials present to describe what changes they have implemented since 9-11 to correct the issues faced on 9-11. In the course of the conversation, we discovered some interesting issues and may wish to highlight them in the upcoming Nov. hearing.

Don Monks said that the key issue for them on 9-11 was the disruption of the telecommunications

sector. After the fact, they discovered that the main carriers all used the

same central station, so when one carrier went down, and they thought they had a back-up with another carrier, it proved to be false. Since that time, they have hired IBM and reviewed their telecommunication

carriers and moved toward a more diversified set of suppliers where the flow COMMISSION SENSITIVE

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of traffic does not eventually wind up into one central station. They have entirely re-engineered the entire system they rely on for telecommunications

through-out the state of New York. He

mentioned that on 9-11, three of five central offices had to work in order for telecom traffic to flow in and out of Manhattan. When they were all hit, this did not function properly.

Don Monks stated that in his view, the problem of interconnectedness of the phone systems is due to the way they were developed and that the only real solution is for companies to review their system usage more carefully. He said that he did not believe that most companies were doing the careful study. During the black-out, BONY still loss the telecommunications connection for long distance. In this case the central office was up and running but it was connected to

sih Street

and that station was out of power. He cited the fact that 37 central

offices are tied to Rochelle, NJ so if any companies are attached to any of these central offices, they are not really exempt from future problems.

Jeff Kuhn said that in his view, one can control your destiny on power, business continuity location and continuity of business but you havelimited telecommunications.

control of your destiny on

He mentioned an article in the press last week on the Fed wire system and

its' reliance on the telecommunications

system.

Don Monks said that he is chairing a Committee on Payments Risk at the NY Federal Reserve. He said that this group of financial institutions organized themselves after 9-11 to deal with issues of that day, but since that time have remained active. He said they are working on best practices on how participants examine the telecommunications

networks they use, how they can

help each other in difficult times, and how they can use each others networks when they are in need. We asked ifhe could share the work of this Committee at the hearing in Nov. 19. He said that he could both do that and share the best practices that BONY has discovered for its own situation during the past two years.

He said that there are three issues corporations need to look at: 1. the issue of tandem central offices and how to avoid a single point of failure that affects all of their connections; 2. sharing of conduits (Con Ed has an alternative fiber optic communication system across the street from Verizon in NYC); and 3. How to avoid the "grooming" ofa circuit by the phone company

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(where they sell off your usage of a circuit to someone else without telling the original company who had the circuit) which means that the company's belief that it has a dual system could be jeopardized. He said that BONY is specializing right now in telecom diversity. They are looking at having duplicate sites within a 250 mile radius outside NYC in order to ensure that they two systems can communicate with no loss of data.

Don discussed the Federal Reserve White Paper which outlines the Fed's views of continuity of business criteria for the key financial market participants. He said the BONY supported this document and has publicly' expressed this support. He said that many companies do not support some of the recommendations and other companies actually did not answer the FED who requested comments because they did not want to share their concerns.

He also mentioned that BONY has a list of 20 questions that they give their clients to ask on Business continuity

They mentioned that the Securities Industry Association and Bond Market Association are both working extensively on business continuity best practices.

The conclusion of the meeting was that the BONY executives will get us the questions on continuity of business they give to their clients, the speech that they are going to present next week in Singapore on the telecommunications

sector and what needs to be studied to remedy this

problem. They also agreed to participate in the Nov. 19 hearing if requested. And finally, they will get back to us with any comments on the GAO review of their story on 9-11.

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