INDEVAL Develops a New Operating and Settlement System Using Operations Research

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.