The Securities and Exchange Commission has proposed new rules that would allow it to shut down banks’ broker/dealers or transfer agents after Aug. 31 if they fail to pass a year 2000 inspection.

Under the proposed rules, a broker-dealer or transfer agent would have a "material Y2K problem" if after Aug. 31 its computer systems incorrectly identify any data in 1999 or a subsequent year, and the error impairs any of its mission-critical computer systems, the SEC said.

Comments on the proposal are due by April 12.

In addition, the SEC will presume there is a material Y2K problem if the broker-dealer or transfer agent does not have written Y2K procedures, has not conducted reasonable Y2K internal testing of mission critical systems, has not satisfied self-regulatory organization testing requirements, or has not remedied exceptions noted in the report of its independent accountants, the proposed rule said.

Broker-dealers and transfer agents with material Y2K problems would be required to notify the SEC. The proposed rules would permit a broker-dealer or transfer agent with material Y2K problems to extend the compliance date to no later than Oct. 15 if its chief executive officer files a certificate with the SEC.

The scope of the rule proposal extends beyond Y2K issues. The rules also would require a broker-dealer to more generally possess sufficient operational capability in order to conduct its securities business, the rules state. Similarly, transfer agents would be required to meet standards of operational capability to assure prompt and accurate transfer and processing of securities, maintenance of shareholder files and production of records, according to the proposed rules