Monday, Jan. 4, 1999: Global foreign exchange markets start trading the euro, and exchanges in 11 participating European countries make a smooth transition to trading stocks denominated in the new currency. The initial market reaction is euphoric -- both the euro and European stocks rose in early trading in Asia, Europe and the US.
Just as upbeat, though, has been the mood among the European exchanges, banks and brokers whose computer systems had to make a flawless switch to the euro, paving the way for the trading to begin. No major catastrophes were reported, and banks were eager to trumpet how well-prepared they had been for the switch-over.
The move to list and trade the euro was the first step in the full transition to the new currency, which will be fully implemented in 2002. To prepare, local currencies had to be fixed correctly against the euro in the exchange computer systems, back-office or settlement capabilities had to be expanded to allow payments for and in euros, and shares on stock exchanges, formerly listed in national currencies, had to be listed in euros. The last preparations were made over the New Year weekend, on Jan. 2 and Jan. 3, as employees fed in the official exchange rates for local currencies into the euro.
The great amount of time and resources that large banks had devoted to the euro conversion seems to have paid off. Germany's Dresdner Bank AG, for example, had invested more than 250 million marks ($US150 million) into the conversion process, had done repeat testing of its systems and devoted an astonishing 2,000 employees to the switchover task on New Year's weekend, according to the German monthly "Finanzen."
But even smaller institutions with fewer resources to spare reported smooth sailing this week.
"The transition went very, very well," said Faical Gargoure, central director at French brokerage Wargny, which has offices in Paris, Lyon and Monaco. More than 18 months of preparation went into developing euro-compatible systems, Gargoure said. The firm also was nudged to prepare by the French Bourse, which required all institutions trading with the exchange to run a series of system tests before the big day.
Like many small and medium-size banks and brokerage firms, Wargny outsourced the vast majority of its euro preparations, using a Paris-based company called Slib. The company wrote software applications for three brokerage firms as well as 20 of their customers, said Patrick Ciaravino, a Slib consultant. Most of Slib's work was focused on writing applications to convert from euros to francs and vice-versa, and to write applications that will let customers work in two currencies until 2002, Ciaravino said.
Given that most trading systems are already capable of handling multiple currencies, the software conversion task -- written for IBM 's AS/400 systems -- was not overwhelming, Ciaravino said. The big effort started on Friday, Jan. 1, when Slib needed to enter the euro-to-franc exchange rate into all of its customers' software applications for the following Monday morning, he said.
Frankfurt-based equity trading firm Birkert & Fleckenstein AG also lets larger firms do most of its euro-legwork, according to Rolf Birkert, managing partner. Its software provider, RTS, adapted the firm's pricing and risk management system, and its back-office activities were handled by the clearing bank Messpierson, a subsidiary of the Dutch-Belgian Fortis Group. But the firm did have to adjust its own market analysis software to quote, for example, futures contract amounts in euros.
"The whole process only took a half an hour on Monday morning," Birkert said.
One Dutch investment management company, Rotterdam-based Robeco Group, was so pleased by how its conversion had gone that it sent around a press release this week praising its software provider, London-based Braid Systems Ltd. Robeco Group previously had proprietary software, but switched over to Braid's messaging and settlement applications, which also took care of their transition to the euro, according to Braid research director Robin Smith. On Dec. 31, Braid began making sure that Robeco's holdings at different banks had been successfully redenominated into euro, Smith said.
Cassa di Risparmio di Firenze, a small Italian bank based in Florence, devoted as many as 250 people to developing and implementing the necessary systems to cope with the new currency. Even so, bank spokesman Vernon de Mars expressed surprised at how easy the transition was. "It was much better and went much smoother than we thought it would," he said.
One London-based financial consultant who asked not to be named said he even thought UK financial institutions may have put too much time into their preparations. "The whole process was over-engineered," he said, noting that there were a lot more man-hours and worry put into it than necessary to fix systems on a technical level.
Many people in London's financial district have been worried that the City -- London's financial district -- might lose prominence since the UK has opted out of joining the list of countries implementing the euro for now.
"It was so important that London be seen to make the switch without any glitches in order to maintain its status as world's leading foreign exchange market," the financial consultant said.
(Jeanette Borzo, Jana Sanchez and Mary Jo Wagner contributed to this report.)