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INDEVAL Develops a New Operating and Settlement System Using Operations Research

Author

Listed:
  • David Fernando Muñoz

    (Instituto Tecnológico Autónomo de México, Mexico City, Mexico D.F. Mexico, 01080)

  • Miguel de Lascurain

    (Instituto Tecnológico Autónomo de México, Mexico City, Mexico D.F. Mexico, 01080)

  • Omar Romero-Hernandez

    (Instituto Tecnológico Autónomo de México, Mexico City, Mexico D.F. Mexico, 01080)

  • Francisco Solis

    (Banco de México, Mexico City, Mexico D.F. Mexico, 06059)

  • Luis de los Santos

    (Banco de México, Mexico City, Mexico D.F. Mexico, 06059)

  • Arturo Palacios-Brun

    (S.D. INDEVAL, S.A. de C.V., Mexico City, Mexico D.F. Mexico, 06500)

  • Francisco J. Herrería

    (S.D. INDEVAL, S.A. de C.V., Mexico City, Mexico D.F. Mexico, 06500)

  • Jaime Villaseñor

    (S.D. INDEVAL, S.A. de C.V., Mexico City, Mexico D.F. Mexico, 06500)

Abstract

INDEVAL, Mexico's central securities depository for all financial securities, implemented a new operating system to increase its operational efficiency and comply with international securities-settlement best practices. INDEVAL used operations research techniques in its core clearing process and in testing the new system's viability. Best practices address high capacity and reliability, real-time settlement, delivery versus payment (DvP), secure data storage and communications (based on the ISO15022 standard), central bank cash funds, and operational transparency. In this paper, we define the problem and discuss a linear programming model, system simulation, and major business process modeling that we devised for the new system. A novel application of operations research techniques provided several benefits, including (1) analysis and testing of the DvP settlement mechanism, which quickly and efficiently processes transactions and optimally uses available cash and securities balances; (2) a secure, reliable, and automatic clearing and settlement engine that operates continuously and efficiently handles all transactions that INDEVAL receives from its participants; and (3) an intelligent and flexible presettlement function that uses business rules and parameters to control the execution of the clearing and settlement process. The new system settles securities transactions that average over $250 billion daily; its successful implementation has substantially improved Mexico's financial system.

Suggested Citation

  • David Fernando Muñoz & Miguel de Lascurain & Omar Romero-Hernandez & Francisco Solis & Luis de los Santos & Arturo Palacios-Brun & Francisco J. Herrería & Jaime Villaseñor, 2011. "INDEVAL Develops a New Operating and Settlement System Using Operations Research," Interfaces, INFORMS, vol. 41(1), pages 8-17, February.
    • Handle: RePEc:inm:orinte:v:41:y:2011:i:1:p:8-17
    DOI: 10.1287/inte.1100.0523
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    References listed on IDEAS

    as
    1. Martin, Antoine & McAndrews, James, 2008. "Liquidity-saving mechanisms," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 554-567, April.
    2. Antoine Martin & James J. McAndrews, 2008. "An economic analysis of liquidity-saving mechanisms," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 25-39.
    3. Martin, Antoine & McAndrews, James, 2010. "A study of competing designs for a liquidity-saving mechanism," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1818-1826, August.
    4. Enghin Atalay & Antoine Martin & James J. McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York.
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