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Design of Clearing and settlement operations: A case study in business process modelling and evaluation with Petri nets. Introduction. Name : Pieter Kwantes Work at ING Bank, Wholesale Securities department

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slide1

Design of Clearing and settlement operations:A case study in business process modelling and evaluation with Petri nets

introduction
Introduction
  • Name : Pieter Kwantes
  • Work at ING Bank, Wholesale Securities department
  • My contribution is based on my master thesis Computer Science (Leiden University. Jetty Kleijn) finished May 2006
content of this presentation
Content of this presentation
  • Motivation behind the case study
  • Case study
    • Problem statement
    • Approach and research questions
    • Execution of the case study
  • Concluding remarks
motivation
Motivation
  • Choice between different process design alternatives, is often based on intuition, expert opinion. Tools: MS-word and power point.
  • The question is whether a formal approach based on Petri nets might do better
  • Try it out in a realistic case study
problem statement 1
Problem statement (1)
  • Clearing and settlement = processing of transactions on the secondary capital market
    • Primary capital market : issue of new securities
    • Secondary capital market : trading of already issued securities
problem statement 3
Problem statement (3)
  • Problem : how to design a business process able to deliver Clearing and settlement services ?
  • This resulted in 2 design alternatives
  • How to decide which one is the best, before starting implementation?
approach the basic idea
Approach: the basic idea
  • Make a Petri net model of each alternative process design
  • Calculate the performance of each model
  • Choose the design showing the best performance for implementation
approach steps
Approach:steps
  • Acquire informal description process designs
  • Establish performance criteria
  • Formalize descriptions with Petri nets
  • Validate formal description
  • Measure performance
  • (Implement best process design)
questions
Questions
  • Questions:
    • Are Petri nets suitable to describe critical properties of the subject domain : C&S ?
    • Are graphical representation and animation enabled by Petri nets helpful for validation purposes?
    • Is it possible and feasible to decide between two process designs of C&S using Petri nets
    • (Can PN-based models be used as a specification/blueprint to guide implementation?)
content of this presentation1
Content of this presentation
  • Motivation behind the case study
  • Case study
    • Problem statement
    • Approach and research questions
    • Execution of the case study
  • Concluding remarks.
approach steps1
Approach:steps
  • Acquire informal description process design
  • Establish performance criteria
  • Formalize description with Petri nets
  • Validate formal description
  • Measure performance
  • (Implement best process design)
informal description 1
Informal description (1)
  • Two different institutional arrangements for secondary capital markets:
    • “Over the counter” markets
    • Formalized exchanges
informal description 2

Trading

Clearing

Settle

ment

Custody

Informal description (2)

Trading

Trading

Member

Firm 1

100 units Shell

Trading

Member

Firm 2

informal description 3

Trading

Clearing

Settle

ment

Custody

Informal description (3)

Trading

Trading

Member

Firm 1

100 units Shell

Trading

Member

Firm 2

Clearing

100 units Shell

Central

Counter

party

100 units Shell

informal description 4

Trading

Clearing

Settle

ment

Custody

Informal description (4)

Trading

Trading

Member

Firm 1

200 units Shell

Trading

Member

Firm 2

200 units Shell

200 units Shell

Clearing

Clearing

Member

Firm B

Clearing

Member

Firm A

200 units Shell

Central

Counter

party

200 units Shell

informal description 5

Trading

Clearing

Settle

ment

Custody

Informal description (5)

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Clearing

Member

Firm

Clearing

Member

Firm

Central

Counter

party

Custody

Power of attorney

0

0

100

100

0

Custodian

Custodian

-Invariance

200

0

0

CSD

0

0

informal description 6

Trading

Clearing

Settle

ment

Custody

Informal description (6)

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Clearing

Member

Firm

Clearing

Member

Firm

Central

Counter

party

Custody

Power of attorney

100

0

0

100

0

Custodian

Custodian

-Invariance

100

100

0

CSD

0

0

informal description 7

Trading

Clearing

Settle

ment

Custody

Informal description (7)

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Clearing

Member

Firm

Clearing

Member

Firm

Central

Counter

party

Custody

Power of attorney

0

0

0

100

0

Custodian

Custodian

-Invariance

100

0

0

CSD

100

0

informal description 8

Trading

Clearing

Settle

ment

Custody

Informal description (8)

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Clearing

Member

Firm

Clearing

Member

Firm

Central

Counter

party

Custody

Power of attorney

0

0

0

100

0

Custodian

Custodian

-Invariance

100

0

100

CSD

0

0

informal description 9

Trading

Clearing

Settle

ment

Custody

Informal description (9)

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Clearing

Member

Firm

Clearing

Member

Firm

Central

Counter

party

Custody

Power of attorney

0

100

0

100

0

Custodian

Custodian

-Invariance

100

0

0

CSD

0

100

informal description 10 design alternative

Trading

Clearing

Settle

ment

Custody

Informal description (10)design alternative

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 1

Trading

Member

Firm 3

Central

Counter

party

Clearing

Member

Firm

Custody

Power of attorney

100

100

0

Custodian

Custodian

-Invariance

200

CSD

0

0

informal description 11 design alternative

Trading

Clearing

Settle

ment

Custody

Informal description (11)design alternative

Trading

Member

Firm 1

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 3

Central

Counter

party

Clearing

Member

Firm

Time : S

Custody

Power of attorney

(-100)

100

0

Custodian

Custodian

-Invariance

-Timing -Power of attorney

CSD

0

200

0

informal description 12 design alternative

Trading

Clearing

Settle

ment

Custody

Informal description (12)design alternative

Trading

Member

Firm 1

200 units Shell

Trading

Member

Firm 2

Trading

Member

Firm 3

Central

Counter

party

Custody

(-100)

100

Custodian

200

Custodian

CSD

0

0

200

informal description 13 design alternative

Trading

Clearing

Settle

ment

Custody

Informal description (13)design alternative

Central

Counter

party

Trading

Member

Firm 1

Trading

Member

Firm 3

Trading

Member

Firm 2

Custody

0

0

Custodian

200

Custodian

CSD

0

0

200

informal description difference between design 1 and 2
Informal descriptiondifference between design 1 and 2

Late received OTC-trades

S - t

S – ½ t

S

  • Design 1 has 2 extra steps before final settlement with CCP, so
    • decision to borrow earlier
    • more failure due to late receiving OTC-trades

CCP

Design 1

CCP

Design 2

slide27

Informal description

DFD : design alternative 1

OTC-

Market

Exchange

Lending

Firm

7

1

10

8

9

13

Central

Counter

party

Clearing

Member

Firm

12

Custodian

11

2

6

14

15

Central

Securities

Depository

5

4

3

slide28

Informal description

DFD: design alternative 2

OTC-

Market

Exchange

Lending

Firm

23

25

1

22

24

21

20

Central

Counter

party

Clearing

Member

Firm

Custodian

13

2

31

30

27

29

28

26

Central

Securities

Depository

4

3

approach steps2
Approach:steps
  • Acquire informal description process design
  • Establish performance criteria
  • Formalize description with Petri nets
  • Validate formal description
  • Evaluate process design
  • (Implement process design)
slide30

Performance criteria

  • Basic purpose of Clearing and settlement to complete a transaction according to what has been agreed upon (amount, prices, time of delivery)
  • Performance criterium is
    • % of traded securities delivered in time
    • amount of borrowing
approach steps3
Approach:steps
  • Acquire informal description process design
  • Establish performance criteria
  • Formalize description with Petri nets
  • Validate formal description
  • Evaluate process design
  • (Implement process design)
approach steps4
Approach:steps
  • Acquire informal description process design
  • Establish performance criteria
  • Formalize description with Petri nets
  • Validate formal description
  • Evaluate process design
  • (Implement process design)
approach steps5
Approach:steps
  • Acquire informal description process design
  • Establish performance criteria
  • Formalize description with Petri nets
  • Validate formal description
  • Evaluate process design
  • (Implement process design)
slide39

Evaluate process design Measurements design 1

(2 accounts)

Borrowing cost

Settlement failure

slide40

Evaluate process design

Measurements design 2

(1 account)

Borrowing cost

Settlement failure

content of this presentation2
Content of this presentation
  • Motivation behind the case study
  • Case study
    • Problem statement
    • Approach and research questions
    • Execution of the case study
  • Concluding remarks.
concluding remarks
Concluding remarks
  • Suitability of HTCP-nets for modelling Clearing and settlement process
      • Decentralized control/communication
      • Complexity
      • Time critical
  • Issues:
    • Modelling of priorities
    • Modelling of dataflow/datastructure
concluding remarks1
Concluding remarks
  • Validation of the HTCPN model
      • Graphical representation
      • Animation
  • Issues:
    • Snap shot animation, lose view of entire OS
    • Local state change, snap shots of entire net
    • Animation of high level nets
    • Domain specific presentation layer
    • Extraction of performance information
concluding remarks2
Concluding remarks
  • Suitability for design evaluation
      • What-if analysis
      • Visualisation of alternatives
  • Issues
    • Support for model variants
      • Reusable model fragments