QA Function for Low Latency Trading Platform. 2 | © 2012, Cognizant Agenda Latency : Definition and Importance Low Latency Application Architecture -

QA Function for Low Latency Trading Platform

2 | © 2012, Cognizant

Agenda

Latency : Definition and Importance

Low Latency Application Architecture - QA checkpoints

Risks involved - QA significance

Global QA Team - Effective Test Management

Global QA Team – Key Benefits

Best Practices – QA Methodology

QA Service Offering

Appendix - I : QA Metrics

Q & A.

3 | © 2012, Cognizant

Latency : Definition and Importance

Definition

Latency - a synonym for delay, is an expression of how much time it takes for a packet of data to get from one designated point to another

When talking about latency in the context of capital markets consider the round trip between trade initiation event and trade execution event.

Latency involves Processing time and Propagation time

Importance

Buy Side firms want to be closer to the liquidity (exchange matching engine) Faster access to market benefits the Arbitrage Trader. Cancelling Open Orders quickly - those who cancel first will reduce their potential losses High frequency Traders hold the positions for as low as milliseconds employing computerized algorithms and hence very

sensitive of the processing speed of markets and of their own access to the market.

Buy Side ClientTrading Venue/

ExchangesBrokerage

Firms

Propagation Time Propagation TimeProcessing Time Processing Time

A B C D

EFGH

4 | © 2012, Cognizant

Low Latency Application Architecture - QA checkpoints

Client Exchange

Booking Apps

OMSBackfiller Component

Client Facing Component(FIX Engine)

Market Facing Component

Proprietary Protocol FIX Protocol

Native / ExchangeProtocol

ProprietaryProtocol

1 2 3

4

5

Validating the message received from the client.

Validating Proprietary Protocol conversion within the application

Validating the message sent to the exchange/ destination trading venues.

Responses received from destination venues.

Reports sent back to the client.

Message sent to internal OMS systems for trade reporting and settlement.

1 2 3a 3b 4 5

5 | © 2012, Cognizant

Risks involved - QA significance

5

Risks/Challenges involved emphasizing strong QA involvement

Incorrect messages/orders sent to exchanges can lead to compliance and regulatory breaches which can also imply monetary penalties

Incorrect report/trade execution not complying with FIX/specific protocol can lead to messages not being delivered to client or even denial of trade executions. This can lead to huge financial losses as the trader can be exposed to unaccounted positions

Errors in trade artifacts sent to downstream order management systems may result in erroneous trade settlement and clearance

Delays in messages sent to exchanges can result in huge direct losses to clients who stand a chance to have substantial gains from arbitrage or even marginal fluctuation in stock price changes hence emphasizing on the importance of low latency.

Delays in cancelling the open orders in market can also implicate serious monetary losses on account of gaining unwanted positions. The most famous examples are “6th May Flash Crash” in US markets

6 | © 2012, Cognizant

Case Study:QA Function for Low Latency Platform of a Global Bank

6

7 | © 2012, Cognizant

Global QA Team - Effective Test Management

Before

US Team

US

Off-shore QA Team

UK Team

UK

Off-shore QA Team

APAC Team

APAC

Off-shore QA Team

After

US

Global Team

UK

Off-shore QA Team

APAC

Improving quality of work by

building a strong team

Removing redundancies and duplicity.

Leveraging Regional

Synergies

KeyObjective

8 | © 2012, Cognizant

Global QA Team – Key Benefits

Sharing ofIssues/ Defects Training and

Knowledgesharing

Streamlinedreporting

EffectiveResourceutilization

Buildinga strong

SME team

PeopleBenefits

FIXprotocoltesting

Test Casereusability

Leveragingregional best

practices

GlobalQA Team

GlobalQA Team

9 | © 2012, Cognizant

Best Practices – QA Methodology

Aligning with Rapid Deployment Process

“Follow the sun” model

Automated regression suite

Real time production scenarios testing

Build tracking mechanism

Exploratory Testing

Value Added Testing

10 | © 2012, Cognizant

QA Service Offering

Regression testing is performed to ensure any new functionality/bug fixes do not impact the existing functionality

Regression test suites are maintained, updated and validated periodically to ensure that critical bug fixes/changes make it to the test suite which would be executed on future releases.

Functional Testing to test new functionalities/enhancements/ requirements and bug fixes in the new release/ build provided by Development team.

In-house automation tools are used to automate a substantial amount of test cases.

The tool utilizes the record and replay functionality, parsing the logs and replaying against simulators.

As the FIX logs have similar pattern this helped in reusing the same component for automation efforts in other regions also.

Performance team engaged to provide performance figures to calculate the round trip delays in QA environment against available simulators/exchange sessions.

The performance figures even though not realistic provide benchmarks for QA team for further deployments.

Capacity and Load testing performed to identify the benchmark capacity figures for the application and also to test the application behavior under variable loads, like multiple client connections.

Regression Testing

Functional Testing

Automated Testing

Performance Testing

Capacity/Load Testing

11 | © 2012, Cognizant

Appendix -1 : QA Metrics

11

QA Coverage:

Exchanges Covered:25+ exchanges covered across US,UK and APAC

Protocols Tested:FIX 4.2 protocolCustomized FIX protocol Proprietary protocolExchange specific native protocols

Indicative QA Metrics for Global QA team supporting low latency applications

12 | © 2012, Cognizant

Q & A