Indeval among finalists for INFORMS Edelman Award

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HANOVER, MD, March 26, 2010 – Indeval’s analytics team is among six finalists that will compete for the INFORMS 2010 Franz Edelman Award for Achievement in Operations Research and the Management Sciences in Orlando on April 19 at the Hilton Bonnet Creek.

The finalists for the competition, sponsored by the Institute for Operations Research and the Management Sciences (INFORMS®), include:

S.D. Indeval with Instituto Technológico Autónomo de México (ITAM) and Banco de México (Banxico) for “Indeval Develops a New Operating and Settlement System Using Operations Research”

The Problem: Indeval is the Mexican Central Securities Depository for all financial securities. It manages Dalí, the Securities Settlement System (SSS), which has as its core an operations research engine. The main benefits that Indeval management’s sought were providing financial markets with liquidity and reducing the resources needed to settle transactions.

Currently, Dalí settles securities operations that average over US$ 250 billion daily, more than 70% of the value settled in the Mexican payments system. Thus, an amount close to the Mexican gross domestic product (GDP) is settled in five operating days.

In 2005, Indeval, the Mexican Central Bank and ITAM began implementing a safer, reliable, and efficient SSS. The two key requirements for the new system were:

1) efficient management of resources through “netting,” since having an SSS that can function with minimal resources is invaluable during financial crises when liquidity is scarce; and

2) real time settlement to meet ever-increasing demands for intraday liquidity and for better risk management tools.

The O.R. Solution: Usually, the handling of financial transactions relies on data management and IT approaches, which do not take into account critical factors such as the order in which settlement instructions are executed. Considering this, operations research techniques were applied. In particular, the team used Business Process Modeling Notation (BPMN); designed and tested a new rule-based SSS to improve the quality and safety of the service; and developed a simulation model to evaluate the performance of the new SSS.

The core of Dalí is an operations research-based engine that is executed automatically (currently configured to run every two minutes or more frequently, if there is enough traffic) and offers a continuous and secure operation, ensuring that settlement is irreversible. This single clearing and settlement engine incorporates a linear programming (LP) model that chooses which pending operations can be settled with the depositors’ available balances, maximizing the value of the transactions settled.

The Value: Thanks to the LP model, many transactions, which would remain pending if they were processed individually are settled together, thus reducing liquidity requirements dramatically — by 52% in cash and 26% in securities. The most important benefit of the implementation of O.R. in Indeval’s SSS is the enhancement and strengthening of the Mexican financial infrastructure. Additional benefits include a safe mechanism to transfer money from the Central Bank to meet obligations in other payment systems and an effective tool for depositors to close their risk positions swiftly for better risk management.

The six 2010 Franz Edelman finalists are:

  1. The Delaware River Basin Commission for “Improving Water Release Policies on the Delaware River through Operations Research”
  2. Deutsche Postal DHS for “Global Brand Assessment”
  3. Indeval
  4. New Brunswick Canada Department of Transportation for “Achieving Transportation Asset Management via Operations Research”
  5. Procter & Gamble for “Inventory Optimization at Procter & Gamble: Achieving Real Benefits Through User Adoption of Inventory Tools”
  6. Sasol for “Stochastic Operations Models at Sasol”

 This is the 39th year of the prestigious Franz Edelman competition. The winner will be announced at a special awards banquet on April 19 at Applying Science to the Art of Business: the 2010 INFORMS Conference on OR/MS Practice.

Additional information about the 2010 Edelman Competition can be found online at URL. Additional information about the INFORMS Orlando conference is at http://meetings2.informs.org/Practice2010/.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.

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