Iosif Itkin - Network models for exchange trade analysis

Data Reconciliation and Software Failures

Iosif Itkin, Anna-Maria KrigerExactpro Systems

ANALYSIS OF IMAGES, SOCIAL NETWORKS, AND TEXTSApril, 10-12th, Yekaterinburg

Exactpro Systems

Our company is a specialist firm focused on functional and non functional testing of securities data distribution, trading systems, risk management and post-trade infrastructures

Quality Assurance = Data Processing

Tools to Validate Trading Systems

ClearTH:• Post-Trade testing tool• Verifies each stage of the DLC• Integrated schedule• Automated matrices• Can create multiple days test scenarios• Concurrent multiple tests• Integrated simulators• SWIFT ISO protocol support

MiniRobots:• Executes multithreaded java code• Complexity of test algorithms is defined by the test developer• Supports multiple client fix connections, order entry and market data via FIX• Can use GUI to iterate through sent and received messages

Dolphin:• Model-based testing of market surveillance systems• Production-scale capacity and throughput• Interactive real-time alerts and reports

Shsha:• Post-transactional tool• Analyzes clients' activity and forecasts system response • Parses and displays logs in a user-friendly way• Parses messages and then puts each to a data base table where each column corresponds to each message field• Allows making summarized reports, etc• Easy to understand GUI

Load Injector:• Simulates multiple client connections with a specified load shape for each connection or a group of connections• Up to 75K messages / second from a single CPU core• Measures latencies in microsecond range• Performance test reports

Sailfish:• Can test Order Entry, Market Data and Post Trade connections in one test scenario• Each test scenario is independent• Allows running test scripts in any sequence• Simulation of multiple user connections• Server simulators• All messages are stored into a data base• Generates test reports

Software Quality Assurance

Software quality assurance (SQA) is a process

that ensures that developed software complies with defined

or standardized quality specifications.

SQA is an ongoing process within the software development

life cycle (SDLC) that routinely checks the developed software

to ensure it meets desired quality measures.

Software Quality Assurance

Software quality assurance (SQA) is a process

that ensures that developed software complies with defined

or standardized quality specifications.

SQA is an ongoing process within the software development

life cycle (SDLC) that routinely checks the developed software

to ensure it meets desired quality measures.

Software Quality Assurance

Software quality assurance (SQA) is a process

that ensures that developed software complies with defined

or standardized quality specifications.

SQA is an ongoing process within the software development

life cycle (SDLC) that routinely checks the developed software

to ensure it meets desired quality measures.

Software Quality Assurance

Minimal Life & Health

Financial Services

Minimal Life & Health

Financial Services

Minimal Life & Health

Data Reconciliation

Reconciliation is a process of finding discrepancies in data obtained from different sources.

In accounting, reconciliation refers to the process of ensuring that two sets of records, usually account balances, match each other.

In financial markets, data reconciliation systems help asset managers to reconcile trades, cash and security flows, balances and positions between different systems, e.g. internal data stored by the trading participant vs. external data received from counterparties, brokers, clearers, custodians, etc.

Smart Order Router

Smart Order Router

Knight Capital Events

• 1 August 2012, USA

• Knight Capital – one of the most successful HFT firms

• Implemented changes related to Retail Liquidity Program at NYSE

• SMARS – ultra-fast order router

• Source code responsible for legacy functionality PowerPeg

• 212 parent orders, millions child orders

• Accumulated loss – $460m or $170k/sec

• Incorrectly configured risk systems

• Deployment on 7 servers instead of 8…

Knight Capital Events

Knight Capital Events

Knight Capital Stock Chart

Regulated Exchange

Facebook IPO on NASDAQ• 18 May 2012, NASDAQ, One of the largest IPOs in history

• Secondary trading is preceded by a designate Display Only Period (DOP)

• Multi-component architecture that included Matching Engine, IPO Cross Application and Execution Application

• At the end of the DOP, NASDAQ’s “IPO Cross Application” analyzes all of the buy and sell orders to determine the price at which the largest number of shares will trade; then NASDAQ’s matching engine matches the buy and sell orders at that price. Usually takes 1-2 ms

• NASDAQ allowed orders to be cancelled at any time up until the end of the DOP, including the very brief interval during which the IPO cross price is calculated. After calculation was completed, the system performed orders validation check between ME and “IPO Cross Application”. If any of the orders were cancelled after the start of the cross, the system would have to repeat the calculation

Facebook IPO on NASDAQ

• Over 496k orders participated in the cross, and its duration exceeded 20ms

• Order cancellation arrived during this period, and the application had to repeat the calculation. Two more cancellations arrived during the second iteration, and four more - during the third one

• IPO Cross Application went into infinite loop at 11:05

• The NASDAQ team switched off validation check on the secondary system and performed failover 25 minutes after the start of the loop

• Unknown at that moment, 38k orders submitted between 11:11 and 11:30 were stuck and did not participate in the uncross. It created another discrepancy, this time with Execution App and Members who were not able to receive confirmation for orders executed in the cross until 13:50

Failover Proposal

Failover Proposal

Facebook IPO Stock Chart

Questions and Answers

Thank you!

We look forward to seeing you there!