1. Study on Franz Edelman Award
Presented by
Alvin
T.Y.BABU
MBA in Engineering Operations
Module Leader: Asst. Prof K.M. Sharath Kumar
M. S. Ramaiah School of Advanced Studies 1
2. Aim and Objectives
Aim :
To study on Franz Edelman Award 2010 by Indeveal
Objectives :
To study the literature survey on the importance of Franz
Edelman Award 2010 by Indeveal
To understand the study of the Franz Edelman Award 2010 by
Indeveal
To analyse the study on Franz Edelman Award 2010 by Indeveal
To conclude the study on Franz Edelman Award 2010 by
Indeveal
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3. Introduction to Franz Edelman Award
Franz Edelman is the fathers of innovation in OR/MS.
Edelman dedicated his career to facilitating better decisions on
matters great and small through operations research.
Today, his discoveries, along with other OR/MS pioneers,
inspire initiatives to help leaders get better results in every
sector of management and operations.
This top INFORMS practice prize was named after Franz
Edelman shortly after his death in 1982.
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4. Franz Edelman Award 2010 Competitors
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”
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5. 2010 Franz Edelman Award Winner
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”
Using O.R., this company decreased liquidity requirements
by $130 billion per day!
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6. Introduction to Company
On April 28, 1978, the first securities depository in Mexico was
officially incorporated
Under the name "Instituto para el Depósito de Valores"(Securities
Depository Institution)
A Government agency with its own legal identity and capital.
The institution first received securities on deposit on October 1979
On July 21, 1987, the privatization of securities depository services in
Mexico was announced in the Official Gazette of the Federation,
On August 20 of that year the institution was legally incorporated as a
private corporation, changing its name to S.D. Indeval, S.A. de C.V.
It began operations in its new capacity on October 1 of that year.
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7. General Objectives
To provide maximum security for the securities market in
aspects relating to the custody
Administration and transfer of securities and the clearing and
settlement of transactions performed in the market
Striving to offer the greatest benefit possible for depositors
and to optimize investors' profit on their investments
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8. Business Need
Mexican financial institutions were challenged
By reserve requirements and high borrowing costs
necessitated by INDEVAL’s securities settlement system,
Smaller institutions could not afford to participate in the
financial markets.
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9. Key Requirements For The New System
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.
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10. Tools and Technique
Quality
Budget Time
Project Management
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11. Strength
INDEVAL, Mexico’s central securities depository, was
operating with 9-14 different settlement systems
That complicated near real settlement of transaction.
And it also limited liquidity and forced financial institutions
to reserve substantial financial resources in order to settle
securities transactions,
Raising costs for smaller players and making it difficult for
them to participate
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12. Raising liquidity and decreasing costs
Early on, INDEVAL had to decide what type of Securities
settlement systems it would develop
SSS are generally conducted according to one of three models
as identified by the BIS and the Committee on Payment and
Settlement Systems, as follows:
• Model 1: real-time gross settlement for all operations
• Model 2: real-time delivery of securities and net settlement
of cash at the end of the settlement cycle, usually at the end of
the day
• Model 3: net settlement of both securities and payments at
the end of the settlement cycles
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13. Model 1
Previously, INDEVAL operated with a Model 1 system
In the Model 1 gross settlement system, the individual seller (or its
bank) delivers the securities to the individual buyer (or its bank) and
the cash flows in the opposite direction.
It is easy to link the delivery of securities to the corresponding
payment but it requires depositors to have adequate financial
resources available to settle their trades.
Financial institutions must borrow funds to support transactions if
they do not have sufficient funds to settle transactions, which raises
borrowing fees and limits liquidity
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14. Model 2
With Model 2 type of settlement
A bank settles trades of a particular security among its own
customers and then transfers
The net number of shares still outstanding to a counterparty bank
to settle trades between customers.
Settlement of the cash is treated the same way, however it is not
done until the end of the day which is riskier.
As in the first model, banks may have to borrow securities to
settle the transfers.
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15. Model 3
In Model 3
which nets the settlement of both securities and payments at the
end of the settlement cycle
It is the most desirable solution
If the time between settlement cycle can be reduced to a short
amount of time.
To develop the optimal solution, INDEVAL built a Model 3
SSS
which nets securities and cash in near real time, settling trades
as quickly as possible after they occur, without incurring
borrowing costs.
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16. Solution
New securities settlement system adopting international
settlement best practices using operations research to
maximize the value of settled trades which come from
myriads of securities transactions in near real time.
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17. Strategy
Isolation process Parallel testing with Central Bank
Industry wide Parallel
testing
Communication
Coordination strategy
Steering Committee
Training
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19. Benefits
240 million USD in 18 months saved in borrowing costs for
Mexican financial institutions
52% reduction in liquidity requirements for banks , 26% reduction
in securities required for settlement
Strengthening of Mexican financial system, especially during 2008
financial crisis
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.
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20. Conclusion
Through Innovative idea
They all team members were worked together co-ordination with co-
operation
Finally they achieved the Edelman award with the TEAM work
T - Together
E - Every one
A - Accomplish
M – More
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21. References
[1] Unknown, “ INDEVAL saves Mexican banks 240 million USD in 18
months”, http://www-01.ibm.com/software/success/cssdb.nsf/CS/CPOR-
8C8MGZ?OpenDocument&Site=default&cty=en_us, Retrieved on 24th
Feb’ 2012.
[2] Unknown, “Edelman Award”, http://www.analytics-magazine.org/july-
august-2010/130-edelman-award-safe-secure-securities-settlement,
Retrieved on 24th Feb’ 2012.
[3] Unknown, “Mexico’s Indeval wins INFORMS Edelman Award”,
http://www.eurekalert.org/pub_releases/2010-04/ifor-miw042010.php,
Retrieved on 27thy Feb’2012.
[4] Unknown, “S.D.Indeval”,
http://sipeli.indeval.com.mx/INDEVAL/INDEVALING/HTML/sdindeval.
html, Retrieved on 28th Feb’ 2012.
[5] Unknown., “General Objectives”,
http://sipeli.indeval.com.mx/INDEVAL/INDEVALING/HTML/objetivo_g
eneral.html, Retrieved on 1st Mar’ 2012.
[6] Unknown, “Franz Edelman Award”, http://www.informs.org/Recognize-
Excellence/Franz-Edelman-Award, Retrieved on 2nd Mar’2012.
[7] Unknown, “Indeval”,
http://interfaces.journal.informs.org/content/41/1/8.abstract, Retrieved on
4th Mar’ 2012.
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22. Thank You
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