The encyclopedia · Finance & Accounting · Technical decision · 2005–2010
Mexico's Indeval settled cash and securities together to cut daily risk
Indeval rebuilt Mexico's securities settlement as an optimization problem, netting cash and bonds together and saving intermediaries $150 million a year.
Indeval (S.D. Indeval)
the move
Indeval is Mexico's central securities depository, the piece of financial infrastructure that concludes trades by moving securities and cash into client accounts, and those flows average more than $250 billion a day.
The old settlement approach processed each side separately, so intermediaries needed large buffers of intraday cash and faced settlement risk. Working with the central bank and ITAM, Indeval designed a system that nets what cancels, then uses optimization and simulation to sequence the rest.
The new system is safer and needs far less liquidity, and the OR behind it let financial intermediaries save more than $150 million a year. It won the 2010 INFORMS Franz Edelman Award.
why it works
- Netting obligations first removes transfers that simply cancel, so the market moves less value than it appears to.
- Optimizing the sequence of what remains lets a member cover its settlements with a smaller liquidity cushion.
- Bringing cash and securities into one model instead of two reduces the window in which a trade can fail.
- A settlement engine that uses less scarce capital strengthens the whole market, not just one participant.
what transfers
When two systems have to move together, optimizing the pair beats making each side move safely on its own.
what came after
The 2010 Edelman Award recognized the Dali settlement system, and Indeval later pushed on to a T+1 settlement cycle and a broader post-trade digital transformation. The work became a reference for how a market infrastructure can use optimization to make a whole national market safer and cheaper to run.
references
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