franz edelman award 2010

M. S. Ramaiah School of Advanced Studies 1

Study on Franz Edelman Award

Presented byAlvin

T.Y.BABUMBA in Engineering Operations

Module Leader: Asst. Prof K.M. Sharath Kumar


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


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.

Introduction to Franz Edelman Award


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. Indeval4. 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”

Franz Edelman Award 2010 Competitors


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!


Introduction to CompanyOn 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.


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

General Objectives


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.

Business Need


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.

Key Requirements For The New System


TimeBudget

Quality

Project Management

Tools and Technique

Ale Montemayor

tiempo a la derecha


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

Strength


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

Raising liquidity and decreasing costs


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

Model 1


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.


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.


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.

Solution


Isolation process Parallel testing with Central Bank

Communication strategySteering CommitteeTraining

Coordination

Industry wide Parallel testing

Strategy


Highly reliable

Secure

Efficient

Integrated

Innovative

Faster time to market

Dali


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.

Benefits


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

Conclusion


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_general.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.


Thank You

franz edelman award 2010

Education

franz edelman award

franz edelman finalists

settlement cyclesm

transfer of securities

operations research5

operations research2

real settlement of transaction

realtime gross settlement