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Physical Settlement System: by Team Hexa-High

The document discusses the proposed new physical settlement system for commodity exchanges and clearing houses in India. The key points are: 1) The current system has drawbacks like inflexibility and risk of forgery or theft of physical warehouse receipts. 2) The proposed new system would use an online transaction processing system with dematerialized accounts maintained by the clearing house and use of electronic images of receipts to allow for real-time balance transfers. 3) Implementing such a new system poses challenges around resources, complex operations, security, and business continuity that would need to be addressed through a phased approach and mitigation techniques.

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prashantgupta84
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40 views

Physical Settlement System: by Team Hexa-High

The document discusses the proposed new physical settlement system for commodity exchanges and clearing houses in India. The key points are: 1) The current system has drawbacks like inflexibility and risk of forgery or theft of physical warehouse receipts. 2) The proposed new system would use an online transaction processing system with dematerialized accounts maintained by the clearing house and use of electronic images of receipts to allow for real-time balance transfers. 3) Implementing such a new system poses challenges around resources, complex operations, security, and business continuity that would need to be addressed through a phased approach and mitigation techniques.

Uploaded by

prashantgupta84
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Physical Settlement System

The first rule of any technology used in a business is that


automation applied to an efficient operation will magnify the
efficiency.
The second is that automation applied to an inefficient
operation will magnify the inefficiency.” (Bill
Gates) By Team
Hexa-High
Scope & Objective
• Scope: Physical settlement system of clearing
house.
• Objectives:
 Primary : Role of IT in Physical Settlement
& implementation challenges in new
development.
 Secondary: Impact of IT applications
beyond immediate users; IT for Social
Welfare.
System Components
People Resources

1) End Users:
 Clearing Members (CM) & his
representatives
 Employees of clearing house
 Warehouse agent
2) IT Specialists: Software and infrastructure
development and maintenance teams
Software Resources

1) Application Software:
 Members interface for deposit, withdrawal,
profile management.
 Employee interface for batch processing,
query resolution.
 Warehouse interface for confirmation.
2) System Software: .Net architectural
framework, proc compilers, operating system
Software Resources

3) Procedures: Standard Operating Procedures


and User manuals.
Hardware Resources
1) Computer Systems:
 Desktop computers for end users
 Server system for developers
2) Computer Peripherals:
 High resolution camera for capturing image of
representatives
 High resolution scanner for scanning
warehouse receipts
Network Resources
1) Communication Media:
 Internet for external users, intranet for
internal users
 Secondary media sources :telephone
connections and fax.

2) Network Infrastructure:
Necessary hardware (like switches, router,
modems) and software (like Internet Browser)
Data Resources
1) Databases:
Relational Database oracle 10g handling of
issues like data redundancy, data consistency,
synchronization, backup etc.

2) Knowledge Bases:
 Standard operating procedures and User
manuals for application users
 Known Error Database of developers
System’s View
1) Input: Commodity deposit, withdrawal and
processing instructions.
2) Processing: Commodity payin/out, closeout,
premium discount, salestax.
3) Output: Updated Dematerialized accounts,
Reports.
4) Control:
 Internal : Batch processsing Controls
 External : FMC – Forward Market
Commission
Existing model for physical
settlement
Order Commodity Order
Buyer Seller
Exchange
Cash
Trade
Deposit

Bank Cash Clearing House Physical Depository


Settlement Settlement
Instructions Instructions

ASSEYEAR Quality Check

Commodity
Seller Deposit Warehouse
Drawbacks of present systems
• Inflexibility of depository systems –

• Theft or Forgery of the warehouse receipt -


Need to move the warehouse receipts from one
place to another in case the transferor and
transferee are at two different locations.

• Need for Real time transfer


Proposed New system of physical
settlement
Order Commodity Order
Buyer Seller
Exchange
Cash
Deposit Trade
Use of
Bank Cash Clearing House Information
Settlement Systems
Instructions
Physical
Settlement
Instructions
Commodity
Seller Deposit Warehouse
How new system will work?
• Online transaction processing system (OLTP)
• Demat accounts maintained directly by the
clearing house
• Use of jpg images of warehouse receipts
improves efficiency
• Real Time Balance Transfer - Advantages
• In sum, Clearing houses assuming the role of
depositories.
Challenges/Implementation
Issues
No Big Bang implementation, but phased
implementation to manage risk by
1) Introducing only Gold and Silver contracts
2) Retaining previous mode of deposits.

If above approach meant low risk for business


units, it meant greater implementation
challenges for IT and Operation team.
Challenges/Implementation
Issues
1) Resource/People Management:
Need for professionals who are expert of .Net,
oracle and proc all together.
Training for end users of warehouse, CM and
employees of clearing house.
2) Increased complexity of daily operations:
 Issues of Part-Payins
 Interface of other modules like Bank.
Challenges/Implementation Issues

3) Security Concerns and Complex Business


Continuity Planning:
 Precious data related to collateral, trades etc.
connected through internet and intranet.
 Back up of multiple servers at real time for
Business Continuity
Challenges/Implementation Issues
N Security Mitigation Technique
o Concern
1 Confidentiality a)Password Management for CM and warehouse, Super user feature,
Sending hardcopy for system resetted passwords.

2 Integrity a)Total fields and checksum fields for commodity deposits, withdrawals over
network so that no data is lost or modified during transmission. ; firewall,
antivirus were updated for protecting against malfunction.

3 Authentication a)Profile management and password management.

4 Access Control a)Two Stage password encryption: one protects from network theft and other
from internal employees/database team; Control rights for directories access
– so that only relevant information is available to relevant people.

5 Non – a)Oracle Locks are used and real time logs to track every command by users
Repudiation – so that no user can claim no command issued and thereby maintaining non-
repudiation.
Enhancements/ Future Scope
1) Timely Information Dissemination through
SMSes/e-mails on every depoist/withdrawal or
change in account balances.
2) ‘Transfer Facility’ for transfer of commodity
between member accounts that will reduce
commodity payin defaults.
3) Real time capability – T+0 basis tranter can be
used for ‘Spot Segment’.
4) Increased business by assuming role of
depositories in other segments.
Enhancements/ Future Scope
5) Auction systems & Governement Food
Distribution programs (FCI- Food Corporation
India)
Lessons Learnt / Take aways
1) Managing Business Risk through Phased
Implementation.
2) Timing of implementing new system.
3) Feasibility Study to save time and cost at later
phases of project development.
4) Not the technology but attitude of people around
technology is key.
Lessons Learnt / Take aways
5) Business and technology integration:

“Information technology and business are


becoming inextricably interwoven. I don't think
anybody can talk meaningfully about one
without the talking about the other.” : Bill Gates
References
• www.nsdl.co.in
• http://www.nmce.com/publication/reports/fmcfinal
report.htm
• ‘Management Information Systems’ by James
O’Brian
• www.ncdex.com
• www.mcx.com
• http://www.wikipedia.org/
Thank You!!

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