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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
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



                       M. S. Ramaiah School of Advanced Studies    2
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.




                    M. S. Ramaiah School of Advanced Studies        3
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”

                       M. S. Ramaiah School of Advanced Studies   4
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!
                   M. S. Ramaiah School of Advanced Studies   5
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.
                         M. S. Ramaiah School of Advanced Studies       6
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




                      M. S. Ramaiah School of Advanced Studies    7
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.




                    M. S. Ramaiah School of Advanced Studies   8
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.




                      M. S. Ramaiah School of Advanced Studies     9
Tools and Technique
                                Quality




Budget                                          Time




                               Project Management




           M. S. Ramaiah School of Advanced Studies    10
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




                      M. S. Ramaiah School of Advanced Studies    11
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
                      M. S. Ramaiah School of Advanced Studies      12
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


                         M. S. Ramaiah School of Advanced Studies         13
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.


                      M. S. Ramaiah School of Advanced Studies      14
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.
                       M. S. Ramaiah School of Advanced Studies     15
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.




                    M. S. Ramaiah School of Advanced Studies   16
Strategy
  Isolation process                        Parallel testing with Central Bank




Industry wide Parallel
       testing


                                                                    Communication
                                     Coordination                   strategy
                                                                    Steering Committee
                                                                    Training
                         M. S. Ramaiah School of Advanced Studies                   17
Dali

Highly reliable

Secure

Efficient


Integrated


Innovative


Faster time to market



    M. S. Ramaiah School of Advanced Studies   18
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.
                        M. S. Ramaiah School of Advanced Studies       19
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




                        M. S. Ramaiah School of Advanced Studies     20
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.
                         M. S. Ramaiah School of Advanced Studies                   21
Thank You




 M. S. Ramaiah School of Advanced Studies   22

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franz edelman award 2010

  • 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 M. S. Ramaiah School of Advanced Studies 2
  • 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. M. S. Ramaiah School of Advanced Studies 3
  • 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” M. S. Ramaiah School of Advanced Studies 4
  • 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! M. S. Ramaiah School of Advanced Studies 5
  • 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. M. S. Ramaiah School of Advanced Studies 6
  • 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 M. S. Ramaiah School of Advanced Studies 7
  • 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. M. S. Ramaiah School of Advanced Studies 8
  • 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. M. S. Ramaiah School of Advanced Studies 9
  • 10. Tools and Technique Quality Budget Time Project Management M. S. Ramaiah School of Advanced Studies 10
  • 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 M. S. Ramaiah School of Advanced Studies 11
  • 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 M. S. Ramaiah School of Advanced Studies 12
  • 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 M. S. Ramaiah School of Advanced Studies 13
  • 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. M. S. Ramaiah School of Advanced Studies 14
  • 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. M. S. Ramaiah School of Advanced Studies 15
  • 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. M. S. Ramaiah School of Advanced Studies 16
  • 17. Strategy Isolation process Parallel testing with Central Bank Industry wide Parallel testing Communication Coordination strategy Steering Committee Training M. S. Ramaiah School of Advanced Studies 17
  • 18. Dali Highly reliable Secure Efficient Integrated Innovative Faster time to market M. S. Ramaiah School of Advanced Studies 18
  • 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. M. S. Ramaiah School of Advanced Studies 19
  • 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 M. S. Ramaiah School of Advanced Studies 20
  • 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. M. S. Ramaiah School of Advanced Studies 21
  • 22. Thank You M. S. Ramaiah School of Advanced Studies 22