1. QA Function for Low Latency Trading Platform

2. Agenda Latency : Definition and Importance
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. Latency : Definition and Importance
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
Buy Side Client
Brokerage Firms
Trading Venue/
Exchanges A B C D H G F E
Propagation Time
Processing Time
Propagation Time
Processing 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.

4. Low Latency Application Architecture - QA checkpoints
Client
Exchange
Booking Apps
OMS
Backfiller Component
Client Facing Component (FIX Engine)
Market Facing Component
Proprietary Protocol
FIX Protocol
Native / Exchange Protocol
Proprietary
Protocol 1 2 3 4 5 1 2 3a 3b 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.

5. Risks involved - QA significance
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. Case Study: QA Function for Low Latency Platform of a Global Bank

7. Global QA Team - Effective Test Management
Before
US Team US
Off-shore QA Team
UK Team UK
APAC Team
APAC
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
Key Objective

8. Global QA Team – Key Benefits
Sharing of Issues/ Defects
Training and Knowledge sharing
Leveraging
regional best practices
Streamlined reporting
Test Case reusability
Global QA Team
Effective Resource
utilization
FIX protocol testing
Building a strong
SME team
People Benefits

9. 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. Capacity/Load Testing
QA Service Offering
Regression Testing
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
Functional Testing to test new functionalities/enhancements/ requirements and bug fixes in the new release/ build provided by Development team. 
Automated Testing
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 Testing
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/Load Testing
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. 

11. Appendix -1 : QA Metrics  QA Coverage: Exchanges Covered:
25+ exchanges covered across US,UK and APAC
Protocols Tested:
FIX 4.2 protocol
Customized FIX protocol
Proprietary protocol
Exchange specific native protocols
Indicative QA Metrics for Global QA team supporting low latency applications
Total Team Size: Around 7
Total QA Drops: 200+ Yearly
Total Defects Raised: 290+ Yearly
Test Case Executed: Around Yearly

12. Q & A