VI. Securities settlement

Lorenzo Jiménez-Vázquez[1]

The purpose of this chapter is to provide an overview of the central securities depository (CSD) in Mexico, as well as of the securities settlement system. In the first section, some basic concepts relevant to securities settlement are addressed, identifying the risks involved in such activities. Then, the concept of the central securities depository in Mexico is covered. A thorough description of the role played by Indeval is presented, which is the securities deposit agency (the Mexican CSD) that also manages - the Securities Deposit and Settlement System (Sistema de Depósito y Liquidación de Valores, also known for its acronym in Spanish as DALÍ), a settlement system for government debt securities issued locally. Finally, the manner in which clearing and settlement systems are linked worldwide is discussed, outlining particularly how operations are settled in Mexico.

  1. Introduction
  2. Basic concepts applicable to securities settlement
  3. Risks involved in securities settlement
  4. Mexico’s central depository
  5. Cross-border connections between clearing and settlement institutions
  6. Operations settled through DALÍ
  7. References
  8. Annex 1. Indeval statistics
  9. Notes

6.1 Introduction

Efficient settlement procedures are essential for the development of securities markets, particularly for the government securities market. The efficiency of both the settlement system and the deposit institutions is fundamental for promoting investors’ trust in market infrastructure, since both are determining factors to (1) achieve an adequate securities flow between primary and secondary markets, and (2) to foster the market’s capacities to grow and expand.

Central securities depositories (CSD) are crucial to the financial infrastructure of any country. They represent the central axis or backbone of financial operations in several ways. A CSD regularly has two main roles:

  1. It provides a central securities custody service. The custody of financial assets may be either immobilized (through a physical document back-up) or immaterialized (entirely through electronic records).
  2. It is a securities settlement system, i.e., a system that transfers both securities and cash among participating accounts, hence achieving irrevocability[2] of such transfers.

These two functions translate into greater efficiency, since intermediaries are provided access to diverse operations with securities through a single link, which in turn is safer and less expensive than using several links. For example: through a centralized custody service, a debt issuer may distribute the accrued interest among tens, dozens, hundreds or thousands of holders by means of a single payment to the CSD from where the corresponding amounts are transferred to the accounts managed (banks, brokers, mutual funds, pension funds and others), which in turn distribute the funds among the holders.

The settlement system managed by the CSD is also expected to incorporate the best practices to reduce risks and ensure a safe management of transactions. The most fundamental of these practices is the so-called delivery versus payment (DVP), by means of which securities are delivered upon the corresponding payment, i.e., securities are delivered only if the final payment has been made.

6.2 Basic concepts applicable to securities settlement

This section includes some basic concepts related to securities settlement that are widely used in specialized literature, in the respective operational and legal regulations, and in the settlement systems themselves.

  • Settlement asset: The asset used to settle obligations according to the specifications set forth in the standards, guidelines and common practices of a settlement system. The best international practices recommend considering the central bank funds as the first choice asset.
  • Clearing: An act through which obligations are substituted by means of an agreement among participants. It may be bi- or multi-lateral. Clearing takes place when two agents perform both as debtors and creditors to each other and by their own right. The purpose of the clearance is to extinguish two debts, up to the smallest amount, and hence requires both debts to be equally liquid and payable. Clearing allows the parties to apply their rights unconditionally and extinguishes all correlative obligations.
  • Delivery versus payment: In any operation, there is always the risk of a counterparty delivering the agreed assets, securities or cash while the other does not. A delivery versus payment (DVP) scheme ensures that securities are delivered only if payment takes place or payment is made only when securities are delivered. For a DVP to work properly, the securities settlement system must be closely related to a payment system or include one.
  • Settlement: The transfer of funds or securities among two or more parties to settle obligations.
  • Securities settlement system (SSS): A mechanism through which funds and/or securities are transferred among two or more parties. It is a sale/purchase operation where the buyer acquires from the seller the rights over a certain amount of securities, for an agreed price. The securities are generally kept on a CSD, which provides a custody service and transfers securities among depositors’ accounts according to their instructions. A CSD can also be regarded as a securities settlement system, since operations are settled among the accounts managed by the CSD.
  • Types of settlements: There are different methods by which settlement systems clear securities. A classification of these methods is provided in Table 6.1.
Table 6.1
Types of settlement systems
Advantages Disadvantages
Real-time gross settlement systems Payments are settled one by one, as soon as participants request them. If a payment cannot be settled (due to insufficient funds or other reasons), it is rejected or remains as pending. Payments are not settled partially, but only totally. 

(i) Timeliness, since the payment is settled immediately if the issuer has enough funds. 

(ii) It extinguishes obligations, helps participants to manage their risks. 

(iii) It is safe, as it does not accumulate considerable amounts of pending payments instead of waiting until they can all be settled, which can generate a risk when the market closes and defaults. These advantages are especially clear in the case of high-value payments. 

(i) Requires considerable liquidity, since the participant must have each penny that needs to be paid (payments sent are not offset by pending payments).
Deferred net settlement systems Payments are accumulated and settled at the end of pre-established periods, i.e., at the end of the operation day, through a multi-lateral clearing process of participants’ obligations. The settlement is only final once all participants have covered their obligations.

(i) The process reduces the liquidity needed by participants.

(i) If a participant is unable to cover all its obligations, several operations also agreed upon with other participants would not be settled, hence pushing the others into defaults. 

(ii) Risk accumulates and problems are often not evident until financial markets close.

(iii) The time between the payment instruction and its final clearance is long. Most low-value markets use this settlement system. 
They include mixed features of both, such as frequently settling a set of payments that may be cleared or covered with the liquidity available. They often include also algorithms to offset operations to use the available liquidity better, leaving outstanding payments for later when more funds are received. They include the features of safe and timely final settlement of RTGS, with the efficiency of DNS in terms of liquidity. 

(i) Settlements are done in a safer and timely manner; they also optimize the use of liquidity. 

(i) They are more complex, and therefore, more difficult to design and maintain.
Source: Banco de México.

6.3 Risks involved in securities settlement

Participants in securities settlement systems are constantly exposed to a variety of risks. In order to apply risk reduction and adequate control measures, the risks must be clearly understood:

  • Systemic risk: The failure to comply with the obligations by a participant may lead to failure from other participants, generating a source of instability for the financial system.
  • Credit risk: The loss resulting from the failure to comply with obligations (default) by a participant. Such loss may refer to:
    • Principal. It becomes evident during the settlement process when cash is delivered without receiving any securities or either when securities are delivered without receiving any cash.
    • Replacement cost. Loss due to price fluctuations in securities when operations are not settled. The replacement cost will be larger as the period between agreement and settlement becomes longer.
  • Liquidity risk: The risk resulting from a lack of sufficient resources (either cash or securities) by a participant to comply with its obligation timely. This risk implies no insolvency, but it may have an effect at the systemic level.
  • Custody risk: The potential loss of securities faced by users of the securities custody and management service, due to negligence or fraud by the service provider.
  • Legal risk: The risk resulting from a deficient or uncertain legal framework that causes or exacerbates credit and liquidity risks, or due to laws and regulations that prevent the contracts or agreements from being met as specified by the rules of a system.
  • Operational risk: The risk of an increase in credit or liquidity risks due to operation factors, such as technical failures, IT system deficiencies, internal controls, or human and operational mistakes.

To reduce these risks, the manager of the securities settlement system (SSS) must carry out an in-depth identification analysis of the weaknesses to which the system is exposed. This analysis involves a complete and thorough description of each of the processes and standards ruling its operation, as well as the identification of participants’ practices. As a result of this analysis, it will be necessary to set:

  • Action plans to eliminate, limit, reduce, control or mitigate risks within the SSS.
  • Clear rules that provide certainty, properly allocate risks, guarantee definite settlement, limit risk exposure for other participants, and request guarantees, when needed.
  • Back-up systems and contingency plans that ensure the SSS efficiency; therefore, these plans must be tested regularly.
  • A reasonable compliance to international standards.

Box 6.1
Recommendations for securities settlement systems

Various recently developed international initiatives aim to keep stability and strengthening the infrastructure of financial systems. The International Organization of Securities Commissions (IOSCO) published in 1988 the Objectives and Principles of Securities Regulation, while in 2001 the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements, released the Core Principles for Systemically Important Payment Systems.

The aforementioned Organization and Committee established the CPSS/IOSCO working group to promote the application of measures to improve international financial stability, reduce risks, increase efficiency and protect investors by recommending them on the design, operation and surveillance of such systems. Consequently, in November 2001, they jointly published the Recommendations for Securities Settlement Systems* that include the following 19 recommendations, the compliance of which should desirably be fulfilled within these systems:

Legal risk

  1. Legal framework: Securities settlement systems should have a well-founded, clear and transparent legal basis in the relevant jurisdictions.

Pre-settlement risk

  1. Trade confirmation: Confirmation of trades between direct market participants should occur as soon as possible after trade execution, but no later than trade date (T+0). Where confirmation of trades by indirect market participants (such as institutional investors) is required, it should occur as soon as possible after trade execution, preferably on T+0, but no later than T+1.

  2. Settlement cycles: Rolling settlement should be adopted in all securities markets. Final settlement should occur no later than T+3. The benefits and costs of a settlement cycle shorter than T+3 should be evaluated.

  3. Central counterparties (CCPs): The benefits and costs of a CCP should be evaluated. Where such a mechanism is introduced, the CCP should rigorously control the risks it assumes.

  4. Securities lending: Securities lending and borrowing (or repurchase agreements and other economically equivalent transactions) should be encouraged as a method for expediting the settlement of securities transactions. Barriers that inhibit the practice of lending securities for this purpose should be removed.

Settlement risks

  1. Central securities depositories (CSDs): Securities should be immobilized or dematerialized and transferred by book entry in CSDs to the greatest extent possible.

  2. Delivery versus payment (DVP): CSDs should eliminate principal risk by linking securities transfers to funds transfers in a way that achieves delivery versus payment.

  3. Timing of settlement finality: Final settlement should occur no later than at the end of the settlement day. Intraday or real-time finality should be provided where necessary to reduce risks.

  4. CSD risk controls to address participants’ failures to settle: CSDs that extend intraday credit to participants, including CSDs that operate net settlement systems, should institute risk controls that, at a minimum, ensure timely settlement in the event that the participant with the largest payment obligation is unable to settle. The most reliable set of controls is a combination of collateral requirements and limits.

  5. Cash settlement assets: Assets used to settle the ultimate payment obligations arising from securities transactions should carry little or no credit or liquidity risk. If central bank money is not used, steps must be taken to protect CSD members from potential losses and liquidity pressures arising from the failure of the cash settlement agent whose assets are used for that purpose.

Operational risk

  1. Operational reliability: Sources of operational risk arising in the clearing and settlement process should be identified and minimized through the development of appropriate systems, controls and procedures. Systems should be reliable and secure, and have adequate, scalable capacity. Contingency plans and backup facilities should be established to allow for a timely recovery of operations and the completion of the settlement process.

Custody risk

  1. Protection of customers’ securities: Entities holding securities in custody should employ accounting practices and safekeeping procedures that fully protect customers’ securities. It is essential that customers’ securities be protected against the claims of a custodian’s creditors.

Other issues

  1. Governance: Governance arrangements for CSDs and CCPs should be designed to fulfill public interest requirements and to promote the objectives of owners and users.

  2. Access: CSDs and CCPs should have objective and publicly disclosed criteria for participation that allow fair and open access.

  3. Efficiency: While maintaining safe and secure operations, securities settlement systems should be cost-effective in meeting the requirements of users.

  4. Communication procedures and standards: Securities settlement systems should use or accommodate the relevant international communication procedures and standards in order to facilitate an efficient settlement of cross-border transactions.

  5. Transparency: CSDs and CCPs should provide market participants with sufficient information for them to identify and evaluate accurately the risks and costs associated with using the CSD or CCP services.

  6. Regulation and oversight: Securities settlement systems should be subject to transparent and effective regulation and oversight. Central banks and securities regulators should cooperate with each other and with other relevant authorities.

  7. Risks in cross-border links: CSDs that establish links to settle cross-border trades should design and operate such links to reduce effectively the risks associated with cross-border settlements.

* BIS, IOSCO. Recommendations for Securities Settlement Systems, 2001, pp. 4-6. (Exhibit 1) Available at:

6.4 Mexico’s central depository

6.4.1 Legal, regulatory and surveillance considerations[3]

The relevant provisions applicable to securities settlement in Mexico are described below. There is a set of additional regulations contained in specific communications issued both by the Ministry of Finance (SHCP, for its acronym in Spanish), the respective surveillance commissions, and Banco de México. The laws[4] governing both the securities clearing and settlement systems in Mexico are:

  • Banco de México Law (Ley del Banco de México, LBM): It is applicable since one of the central bank purposes is to promote the healthy development of the financial system and foster the adequate performance of the settlement systems.
  • Law on Settlement Systems (Ley de Sistemas de Pagos, LSP): Its purpose is to regulate the performance of payment systems set forth by the law itself, by establishing the definite and irrevocable character of transfer orders, clearing and settlement processed through such systems, including those related to securities.
  • Securities Market Law (Ley del Mercado de Valores, LMV): Its purposes are to promote stock market development in a fair, efficient and transparent manner; to protect investors’ interests; to minimize systemic risk, and to foster healthy competition.
  • General Law on Securities and Credit Operations (Ley General de Títulos y Operaciones de Crédito, LGTOC): It regulates both settlement instruments and financial transactions carried out with such instruments.

The regulations applicable to securities markets and their operations are issued by Banco de México, the Ministry of Finance and the surveillance agencies appointed for that purpose by the Ministry of Finance, such as the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV), the National Insurance and Surety Commission (Comisión Nacional de Seguros y Fianzas, CNSF), the National Commission for the Pension System (Comisión Nacional del Sistema de Ahorro para el Retiro, CONSAR), and the National Commission for the Protection of Financial Services Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros, CONDUSEF).

In accordance to the CNBV Law, the purpose of this institution is to survey and regulate financial institutions in order to guarantee their stability and proper performance, as well as to maintain and foster a healthy and balanced development of the financial system as a whole, while protecting public interests. Financial institutions are defined as companies managing financial groups, as credit institutions, brokers, stock exchange specialists, brokerage firms, stock exchanges, securities depository institutions, and securities rating agencies, among others.

Both the Ministry of Finance and the surveillance agencies set forth the main regulations, including those of preventive nature to which the financial system is subject, while Banco de México sets the operation standards applicable to participants of the government securities market, the money market, the settlement systems, and the foreign exchange markets.

As for the clearing and settlement institutions, the CNBV is entitled to authorize their constitution and operation, as well as to surveil their electronic systems. This last responsibility is complemented by the powers that Banco de México exerts in accordance to the Law on Settlement Systems (LSP).

The CNBV has also established, through general rules, the guidelines for issuing and operating securities and documents submitted to the regime determined by the LMV.

The LGTOC includes several regulations regarding the legal representation of debt instruments, a broad concept including securities and other instruments, such as bills of exchange and checks. These regulations consider only the representation of debt instruments through physical securities. In this regard, it is set forth that the debt instrument holder must submit it in order to apply the right it has on them.

However, the LGTOC establishes that in the case of public debt instruments, banknotes, mutual fund shares and other documents ruled by special laws, the rules set forth by the related regulations shall apply. In this regard, the LMV states that when issues deposited in a securities depository institution or securities derived from property rights are received directly from the issuer, the issuer may deliver multiple listed securities or one security covering a part or all the bonds related to the issue and the deposit. Then, the securities depository institution will record the necessary entries in order to determine the rights of the respective depositors.

As per requirement of the Mexican Stock Exchange (Bolsa Mexicana de Valores, BMV), all bonds to be traded, either debt securities or equities, public or private, must be deposited in S.D. Indeval S.A. de C.V, the Securities Depository Institution.

6.4.2 Securities clearing and settlement: Indeval[5]

The purpose of securities depository institutions is to provide the deposit service for securities received from banks, brokerage firms, stock exchanges, central counterparties, insurance and bail institutions and mutual funds, among others. They can also manage these securities, according to the terms set forth by the LMV, and carry out transfers, clearings and settlements of operations related to the deposited securities.

The LMV sets forth that providing securities custody, management, clearance, settlement and transfer services are of public interest. The delivery of these services may only be performed by entities authorized by the Ministry of Finance for that purpose, upon previous favorable opinion of the CNBV. Securities depository institutions are entitled to perform, among others, deposit, management, transfer, clearing and settlement activities of the securities kept in the depositories.

According to the LMV, securities depository institutions are subject to inspection and surveillance by the CNBV. They must therefore establish house rules that include, among others, standards applicable to the delivery and withdrawal of securities in the depository, the physical protection and management of deposited securities, the procedures for transfers, clearings and settlement of securities, and for applying property rights and setting penalties, in the case of non-compliances. The house rules and any amendments to them must be submitted for joint authorization by the CNBV and Banco de México.

There is only one securities depository institution currently operating in Mexico: Indeval. It keeps in deposit the securities traded in the Mexican market and performs their clearance and settlement through a delivery versus payment (DVP) scheme using the DALÍ Securities Deposit and Settlement System, which is linked to the payment systems operated by Banco de México.

Indeval was first founded in April 28, 1978, under the name of “Instituto para el Depósito de Valores” (Bond Deposit Institute), as a government agency that provided custody, management, clearing, settlement and transfer services via book entries.

In 1987, the agency became a private corporation with the legal name of S.D. Indeval, Institución para el Depósito de Valores, S.A. de C.V., and began operating in October 1, 1987. Today, Indeval provides the following services:

  • Securities custody and deposit
  • Property and corporate rights management
  • Securities transfers
  • Securities clearing and settlement
  • Guarantees management
  • Securities lending
  • Repos
  • Securities lending for market makers

6.4.3 Securities holding and immobilization[6]

The LGTOC sets forth that the ownership of a security is transferred by transferring a negotiable instrument stating such ownership. Nevertheless, since the securities traded in the Mexican securities markets are deposited and immobilized at Indeval, securities are legally transferred through an accounting procedure between accounts, using the corresponding entries made in the accounts managed by Indeval with no need of physical delivery of any document or negotiable instrument of the corresponding issue.

Indeval's house rules state that the deposit of securities comprises their material delivery/receipt, their transfer between accounts, their allocation to a depositor’s account and, in the case of government securities, their virtual delivery.[7]

In order to differentiate between the broker or custodian and the customer assets, the LMV entitles the possibility of opening both “own” and “third party” accounts in Indeval, in which case, in the event of default/failure to pay on the part of the intermediary or custodian, the authority shall only use the assets of the defaulting part to pay debts and not those of its customers.

6.4.4 Securities custody

As aforementioned, Indeval is the only entity authorized in Mexico to operate as a central securities depository. It provides the deposit and custody services in the form of physical protection of securities and it is the centralized depository for all securities listed in the National Register of Securities and Intermediaries (Registro Nacional de Valores e Intermediarios, RNVI), whether they are listed or not in the BMV.

Indeval is entitled to keep all securities in its facilities, in any credit institution or in Banco de México. The securities deposited may also be kept in foreign banking institutions or in other central depositories, Mexican or foreign, such as Euroclear and Clearstream, when authorized by the CNBV.

Banks and brokerage firms are also entitled to provide securities custody and management services in their own facilities, in a centralized depository or in the institution designated by CNBV. In practice, banks and brokerage firms operate as sub-custodians of Indeval for investors that do not have their own account in Indeval.

A deposit at Indeval comprises the delivery of documents formalizing the issue of securities. Then, Indeval opens accounts on behalf of depositors which are identified by type of security and by the serial number of the securities deposited.

Indeval receives depositors’ securities for any of the types of deposit (custody, management, or guarantee). Its house rules state that the deposit comprises the material delivery of securities, their transfer from a depositor’s account to another, by allocating securities to a depositor’s account and, in the event of government securities, their virtual delivery.

In order to hire the deposit and management services provided by Indeval, an agreement by which depositors agree to the Indeval’s house rules must be signed.

Participants must deposit securities on their own behalf, stating which are on their own account and which are on behalf of third parties, being Indeval responsible for recording them separately as per the aforementioned difference.

Indeval deposits physical government securities at Banco de México. Nevertheless, as a result of primary auctions of these securities, Indeval registers with a book entry the securities allocated by Banco de México to each of the depositors’ accounts who received allotment, once Banco de México makes the corresponding deposit in its own Indeval account.

Pursuant to the house rules and operations manual of Indeval, Indeval shall provide the services in compliance with the obligations arising from operations agreed among its depositors only if such operations are recorded in the DALÍ system.

Depositors may record their operations directly or instruct Indeval to do so, as in the case of some corporations that provide mechanisms aiming to facilitate operations (electronic trading floors) or of central counterparties.

6.4.5 Deposit accounts

Indeval receives securities either for their custody, management or in guarantee. The relevant features of each type of deposit are:

  • Custody: Indeval is only responsible for the custody of securities.
  • Management: Indeval must perform the necessary actions to preserve rights conferred to the holders of the securities deposited and is entitled to enforce the patrimonial rights stemming from these securities; consequently, it may collect redemptions, dividends in cash or shares, interests and other patrimonial concepts for as long as the securities are deposited. Securities management is subject to the timely provision by issuers of the necessary resources to settle the corresponding patrimonial rights.
  • Guarantee: Indeval is required to keep the deposited securities as a guarantee until the obligations stemming therefrom are fulfilled, in accordance to the applicable laws and regulations. All guarantees constituted with securities deposited in Indeval are considered as granted as pledge,[8] except for the cases expressly stated by the applicable laws and regulations. To open guarantee accounts, depositors must provide Indeval a copy of the securities pledge agreement undersigned with the counterparty. Indeval enforces the property rights stemming from the pledge securities affected, in pursuance to the terms of the resolutions included in the corresponding securities pledge agreement. The securities deposited in guarantee may also be substituted and released according to the terms agreed upon in such agreements.

6.4.6 Transfer of deposited securities

The operations agreed upon with securities are regularly settled through securities transfers using DVP procedure; however, depositors, under their own responsibility, may request Indeval to transfer securities free of payment (FOP) in the cases that may be proper by law, in compliance with the applicable regulations.

For the case of settlements through the transfer of securities under the DVP modality, Indeval adopted a model in which operations are included in its system and settled at the value date determined by the depositor, following the procedure described below:

  • Once the operation is accepted in the system, it is verified that the account that delivers instruments has the securities and the account that pays has enough cash.
  • In the case of operations that require the delivery of a guarantee (such as securities lending), it is also verified that the corresponding guarantees have been transferred.
  • If the previous conditions are fulfilled, obligations are settled through charges and payments in the securities accounts and, simultaneously, in the cash accounts of the depositors participating in the operation.

Both the house rules and the operations manual of Indeval establish special settlement procedures that include the mechanisms to extinguish obligations stemming from unfulfilled obligations on their settlement date. These special procedures for fulfilling obligations include:

  • The arrangement of securities lending for which Indeval acts as borrower on behalf and account of the defaulting depositor.
  • The mandatory purchase carried out by the complying depositor.
  • Cash arrangements between complying and defaulting depositors.

Regardless of these mechanisms, Indeval´s house rules impose conventional penalties on any depositor that does not comply with the obligations stemming from agreed operations in due time and proper form.

6.5 Cross-border connections between clearing and settlement institutions

Indeval offers direct accounts to foreign institutions that keep securities issued in Mexico, like the American Depositary Receipts (ADRs) of Mexican corporations that are traded in New York. These custody accounts are free of payment (FOP), i.e., the settlement of operations made with such instruments takes place outside the Interactive System for Securities Deposit (Sistema Interactivo para el Depósito de Valores, SIDV), currently replaced with DALÍ (see Box 6.2).

When Indeval receives free of payment (FOP) transfer instructions from/to its foreign depositors, it double-checks the operations by telephone with the Mexican counterparty and enters a free of payment (FOP) instruction in the DALÍ system. The securities transfer is thus processed and confirmation is sent, both to the foreign depositor and the Mexican counterparty. Cash settlement takes place bilaterally among counterparties.

Since certain Mexican eurobonds denominated in US dollars are kept in securities accounts at the central depositories Euroclear and Clearstream, Indeval has a global account in these depositories. Some of these securities are listed in the BMV and traded mainly by mutual funds and pension funds. If a Mexican investor wants to purchase one of these securities, its holder carries out a transfer in Euroclear or Clearstream, as appropriate, from his own account to the account of Indeval which, in turn, credits the securities in the Mexican investor account. Any later operations with the same securities in the Mexican market will be settled through Indeval following the same rules applicable to other securities, as long as they are denominated and settled in Mexican pesos.

DVP operations performed with international custodians and other central securities depositories are settled using bank accounts with international coverage.

Besides Euroclear and Clearstream, Deutche Bank, Bank of New York, Banco Santander and Banco BBVA also participate as custodians in the aforementioned mechanisms.

Box 6.2
Replacing SIDV with DALÍ[9]

The Securities Depository Institution, the first centralized depository in Mexico, was created in 1978. This institution operated as a government agency until 1987, when it became privately-owned and legally incorporated under the name S.D. Indeval, Institución para el Depósito de Valores, S.A. de C.V. (Indeval). Up to 1996, the role of Indeval in settlements was limited to the transfer of the securities involved in its depositors’ operations and the parties agreed upon the means to be used in the settlement. In 1997, Indeval began operating the Interactive System for Securities Deposit (Sistema Interactivo para el Depósito de Valores, SIDV), through which the delivery vs. payment (ECP, for its acronym in Spanish) practice was implemented for settlement operations.

In 2004, Indeval began developing a new settlement system to replace the SIDV. Due to the relevance of SIDV in the Mexican financial system, Banco de México was actively involved in this project. The main objectives of the new system were: automating Indeval’s operation processes; modernizing communication mechanisms between Indeval and its depositors; improving the operation’s safety and reliability, and renewing the technological platform and the system’s architecture. As a result, in November 2008, Indeval began operating the Securities Deposit, Management and Settlement System (Sistema de Depósito, Administración y Liquidación de Valores, DALÍ).

Many of Indeval’s manual processes became automated and simplified with DALI; several settlement processes used by the SIDV concentrated on one single component, which considerably improved operational reliability. Consequently, updating the technological infrastructure of Indeval, together with more appropriate information architecture for such system, have improved its performance and made it scalable.

DALÍ offers participants two new communication mechanisms to access Indeval services in a safer and orderly manner. The first of these mechanisms, known as the Indeval Financial Protocol (Protocolo Financiero Indeval, PFI), is designed to establish a communication from one computer to another (host to host or H2H). This protocol is based on the exchange of messages that allows participants full automation of their processes, thus reducing the cost and frequency of errors. The second, the DALÍ portal, is an interface that allows depositors access to DALÍ services from their computer browsers. All instructions transmitted through DALI are digitally signed, hence providing safer communications.

DALÍ settles operations more frequently than the SIDV, thus representing a nearly real-time settlement system. Moreover, it provides more efficient communication links to the SPEI and SIAC,[10] payment systems, therefore improving resource mobility between these systems.

Replacing SIDV with DALÍ
Settlement cycle frequency
15 minutes
2 minutes maximum
Continuous timetable
Use of open communication protocol (ISO-15022)
Operational risk
Use of electronic signatures for operations
Percent of the amount settled during the day cycle in relation to the daily amount settled 
< 1%
20% aprox.
Source: Banco de México.

6.6 Operations settled through DALÍ

Through the DALÍ modules, Indeval receives and processes financial instructions sent by participants. The average daily amount settled in 2014 is approximately 3 trillion pesos, of which 2.5 trillion account for government securities. As for the number of daily operations, there is an average of 14,200 operations, of which 9,400 are government paper.

1/ DALÍ replaced SIDV on November 2008.

1/ DALÍ replaced SIDV on November 2008.

A transaction’s cycle includes the following four notifications:

  • Presented: The instruction was received by Indeval, which has validated and acknowledged receipt.
  • Confirmed: The negotiating terms and instructions have been confirmed among the parts, i.e., there is a “match”.[11]
  • Accepted for settlement: The instruction is already on the settlement queue, waiting to be processed as soon as possible.
  • Settled: The instruction has been settled and the obligations it represents are definite.

In each of these steps, several risk and integrity validations are performed (Table 6.2).

Table 6.2
DALÍ instruction settlement process 
Indeval records all instructions received from participants on an electronic log. Then, it performs the following validations on the message received to determine the nature of the acknowledgement receipt to be handed back by the participant:
The message folio must be consecutive regarding the folio of the immediately prior message of the same participant. The sequence of each participant is independent from that of others.
Transaction messages, i.e., those implying cash or securities movements, must be electronically signed, versus queries. Therefore, the digital signature attached to transaction messages is verified.
The message should be interpretable.
Basic data validations that ensure the message would be correctly interpreted by the next processes in the system.
Negotiation terms are expressed in the values of the instruction data fields. The match process compares the values in the instructions fields (e.g., a purchase) against the values in the fields of a related instruction (e.g., a sale). If the values in both instructions are equivalent, it means that the instructions sent by both parties “match”. The result of such comparison may lead to one of the following status:
No match
The related instruction was not found or does not exist.
The related instruction was found.
No match was found and the limit date and time for the settlement have expired or the instruction was canceled by the issuer. 
The acceptance or optimizing process prepares instructions for settlement. It consists on the application and verification of compliance with business rules and the subsequent settlement packages are sent to the instructions queue of the pre-settlement component. This process may lead to one of the following status: 
Business rules were applied and the instructions did not meet the validations.
Pending settlement
The business rules were applied successfully and the corresponding settlement packages were created.
Pending settlement instructions on queue are settled. Most instructions are cleared, while others are sent for direct settlement, depending on the best solution determined by the optimizing algorithm built in the system. The status of this final phase are:
The instruction is settled.
Pending settlement
It was not possible to settle the instruction.
The instruction remained on the pending settlement queue, but the settlement limit date and time have expired.
Source: Banco de México.

6.7 References

  • BIS. “Statistics on payment, clearing and settlement systems in the CPSS countries - Figures for 2010 - preliminary release”. 2011.
  • BIS. “Statistics on payment, clearing and settlement systems in the CPSS countries - Figures for 2012 - preliminary release”. 2013.
  • BIS. “Statistics on payment, clearing and settlement systems in the CPSS countries - Figures for 2013 - preliminary release”. 2014.
  • BIS / IOSCO. Recommendations for securities settlement systems. 2001.
  • IBRD/World Bank, IMF. Developing government bond markets a handbook. 2001.
  • WORLD BANK, CEMLA. Payment and securities clearance and settlement systems in Mexico. 2003.

6.8 Annex 1. Indeval statistics[12]

Download Annex here.

6.9 Notes

[1] Lorenzo Jiménez-Vázquez has a Bachelor degree in public accountancy by Instituto Politécnico Nacional (IPN). Along his professional career at Banco de México’s back office he has participated in various projects related with the implementation of securities issuance and monetary policy, from both the accounting and legal approaches. He was involved in the work groups created for designing, implementing and starting up the SIAC and SPEI payment systems managed by Banco de México, and the DALÍ system managed by the security deposit SD Indeval. He is currently Operations Processing manager, and is responsible for the implementation, registry and settlement of monetary policy and currency exchange operations performed by the central bank, as well as those involving international reserves.

[2] According to the Law of Settlement System (LSP, for its acronym in Spanish), a transfer order, involving either cash or bonds, is considered accepted when it has already passed all the risk controls established according to the standards of the appropriate payment system and, hence, can be settled. Transfer orders are then considered as firm, irrevocable and collectible before third parties.

[3] For a more detailed reference of legal aspects, see the chapter “Legal and regulatory framework. Fiscal considerations”.

[4] For an updated version of these regulations, refer to

[5] For statistics related to Indeval, see Annex 1 of this chapter.

[6] This subject is also covered in the chapter “Types of instruments and their placement”.

[7] Federal government debt securities locally issued are physically kept at Banco de México, while securities issued by IPAB are deposited at Indeval. The securities holding control is performed through Indeval, which carries an accounting record of the instruments held by the various financial institutions which, in turn, also carry an accounting record of their customers’ holdings.

[8] PLEDGE: A person known as “security pledge grantor” affects certain securities deposited in the depositary institution on behalf of another person known as “creditor” to insure the fulfillment of his own or of third parties’ obligations, even agreeing on an extrajudicial action by the “grantor” in the event of non-compliance.

[9] Financial System Report. Banco de México, July 2009, p.197.

[10] The Accountholders Customer Service System (Sistema de Atención a Cuentahabientes, SIAC) is the payment system managed by Banco de México that includes, among others, the “unique accounts” of local credit institutions. For this reason, monetary policy is implemented through this system and liquidity is provided from SIAC to other payment systems. The Interbanking Electronic Payments System (Sistema de Pagos Electrónicos Interbancarios, SPEI) allows users to transfer funds “in real time”, together with information for the receiver to credit the transfer in its customers’ accounts. The customer of one bank can then transfer funds from his account to the account of a customer from a different bank through SPEI.

[11] MATCH: If the fields of both instructions are equivalent, the instructions sent by both parties are considered as a “match”.

[12] Source: “Statistics on payment, clearing and settlement systems in the CPSS countries - Figures for 2012 - preliminary release”. Bank for International Settlements 2013.