The encyclopedia · Finance & Accounting · Financial decision · 2004–2011
Indeval rebuilt Mexico's securities settlement with OR, saving $150m a year.
Indeval and its partners rebuilt the system that settles $250b-plus a day of trades, using optimization to cut the liquidity and risk the market needed.
Indeval · Bank of Mexico · ITAM
the move
Settlement systems are the core of financial infrastructure, moving securities and cash between accounts for brokers, banks, insurers and pension funds; Indeval's system settles operations averaging more than $250 billion a day.
Indeval, the Bank of Mexico and ITAM built a new operating and settlement system using operations research to design protocols, business rules and best practices that let trades settle with minimal resources and better intraday risk management.
INFORMS credited the implementation with strengthening Mexico's financial infrastructure and allowing financial intermediaries to save more than $150 million a year; the project won the 2010 Franz Edelman Award.
why it works
- Settlement must conclude enormous value with limited liquidity
- Better netting and rules reduce the capital the market must hold
- Quoting and messaging design is where the saving is won
- Measured: more than $150m a year in intermediary savings
what transfers
For a financial backbone, the hard-to-see cost is the liquidity and risk the whole market must hold to function; redesigning the rules can free far more value than optimising the front office.
what came after
Indeval's new settlement engine became safer and more efficient than its predecessor, and the work demonstrated that OR on wholesale settlement rules can reduce systemic liquidity needs while supporting growth in trading volumes.
references
- Visiting Professor Wins Award for Work on Mexico's Financial System
- INDEVAL Develops a New Operating and Settlement System Using Operations Research
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