IBM CPLEX Optimizer Technology at Core of Mexico's Securities Trading System

IBM's decision automation software from its ILOG acquisition is powering the securities settlement system for all the financial institutions in Mexico.

Mexico's central securities depository is using IBM software that can settle securities trades in near real time, IBM said Dec. 22. Rapid settlement means banks don't need to have as much cash on hand to cover trades, which reduces the risk of financial losses, according to IBM.

Indeval, Mexico's central securities depository, is using Dali, a securities settlement system based onIBM ILOG CPLEX Optimizer software. IBM acquired this decision automation and advanced analytics software as part of its 2008 acquisition of ILOG.

Indeval manages securities on behalf of banks and individual investors after the trade is finalized, according to Jaime Villasenor, chief risk officer at Indeval. "We have to complete the delivery of the security and the money," he told eWEEK. There are thousands and thousands of transactions daily that have to be settled, he said.

In a recent settlement cycle, Indeval settled more than $70 billion in stock trades in one minute.

Dali uses Optimizers to match thousands of transactions simultaneously so that only net amounts of securities and cash need to be transferred among the participating financial institutions. Pretty much all institutions that handle securities trading are "directly or indirectly" part of the system and there is "no other option," Villasenor said.

"It's rare that we get to see such scope and such performance," said Pierre Haren, from the IBM software group and the former CEO of ILOG, referring to the fact that the system covers more or less the whole country's trading infrastructure. Focusing on the big picture allows customers to "achieve bigger economies," he said.

The system has been in place for two years, according to Villasenor. The improved trade settlement system has halved the amount of cash the banks have to have on hand, saving Mexican banks more than $240 million in interest over 18 months, said Eduardo Gutierrez, software director of IBM's Mexico and Latin Caribbean operations.

The system has added stability to Mexico's financial system and reduced the effects of fluctuating market conditions by raising liquidity levels and lowering capital requirements for financial institutions, said Villasenor.

Indeval's previous system required banks to have billions of dollars in cash on hand while securities were being settled. Linking the delivery to the corresponding payment requires depositors to have the money on hand, requiring institutions to borrow if sufficient funds were not available at that time, said Villasenor.

To build it, Indeval searched for new technologies that supported the development of the rapid settlement system and were robust enough to rapidly process "volumes of transactions," said Villasenor. The search led them to IBM's ILOG CPLEX Optimizer software.

"The ROI is stunning for the country," said Haren.

When the system was rolled out, Indeval conducted more than 200 training sessions industrywide to familiarize all the users with the different aspects of the system, Villasenor said. Along with the change in the actual settlement process, there were a number of changes to business rules that drove transaction settlement, he said. There were 14 different fragmented processes that handled the settlement process under the old system, but under the new system, they were consolidated into a robust and optimized single process, he said.

Many airlines use CPLEX software for pricing seats on airplanes, according to an IBM spokesperson, as the software calculates what the price would be for a seat sold last-minute versus one a week in advance.