Capital Market Testing

Workshop hosted by Time2test Limited in conjunction
with Asymilate Limited
www.time2test.co.uk – Time2test Limited © 2013, 2012 1

Agenda
What's the agenda?
Flexible agenda to met the delegates’ requirements.
Evening times:
6pm – 10am ( 4 hours with coffee breaks)
Weekend and weekday times:
Start at 9am to 5pm with breaks and lunch
www.time2test.co.uk 2
House Rules!
 Lavatories
 Food and Drink in the class room
 Drinks – water from the kitchen area
 Fire Alarm
 Room Access during lunch and breaks
Pre-requisites
• Your laptop and permissions to install software
• Windows machine for installation of the client
software , ftp clients and other useful tools
• Pen and notepad for taking notes
3 mins
Fast Paced course?
 Lots to go through
 We only have a limited time so the pace is going to be
fast
 The workshop will introduce you to the Capital
markets domain from the Quality assurance and
testing perspective.
 We will introduce you to Asymilate’s Capital Markets
Testing tool : Caesar
About me – Mitesh Soni
 Over 20 years in the Capital Markets
Banking Domain
 Has worked for major investment banks
as a principal consultant
 Specialises in Capital Markets Quality
assurance and Testing solutions.
 Managing Director of Asymilate Limited
About me! – Viresh Doshi
 Over 15 years testing experience
 Extensively worked in the Internet domain
 Technical testing specialist
 Process Improvements Advocate
 Automation testing advocate
 Keen follower of Agile and it’s techniques
What do you want to get out of the
course?
 Note down your goals and objectives one per sticky
note and describe them.
 Note down any questions you have that you would
like answered.
 One per sticky note
 Lets review them at the end of the course.
10
mins
What do you already know about
the capital markets domain?
 Lets talk and note down what we already know.
5 mins
Capital Markets Testing overview
 The workshop will be delivered in a classroom lecture
style.
 We will use a popular Capital Markets Application to
describe the domain and concepts for testing and QA
 We will also refer back to Caesar application which is a
test harness built to perform regression testing for
Capital Markets.
Course Overview
The 2 day Capital Markets Testing
workshop is split into three
categories:
1. Banking Domain
2. Technical Skills
3. Testing skills
Course Overview – Banking Domain
 Capital Markets - what is  Learn STP – straight
capital markets in the through processing
investment banking arena?
 Risk and Reporting - EOD
 Learn about investment
banking trading  Learn about these
 Learn the different banking objects(trades, transfers,
products (ADR messages, tasks, legal
1. Equities entities, tasks, legal entities)
2. Repos  Learn about static data
3. Swaps  Learn about netting
4. Bonds
5. Derivatives  Learn about SDI
 Learn the workflow - Trade,  Learn about rejected trades
Transfer, Message and resolution
 Learn about SWIFT messages  Learn about Front office,
Middle office and Back
office
Course Overview – Technical Skills
 Unix and linux for running jobs and
viewing log files and starting and
stopping
 Telnet and FTP for test data
manipulation
 XML files manipulation
 Basic of SQL for test data preparation
Course Overview – Testing Skills
 Popular test variations for Test data Prep
 Functional testing and Regression testing
test plans and test cases creation
 Performance Testing planning and
simulation
 Test Environments and development
environment.
 Problems and Defect finding and resolution
Recap
 Introductions complete
 Objectives set on the sticky notes
Quick recap of topics covered in the first session
FX example
 FX – Foreign Exchange
 Trade Lifecycle – Pricing to
Accounting
 Front office
 Back office
 Middle office
Products
 Securities- Bonds, Equities
 Derivatives
 Money Markets
 FX
Areas covered
 Domestic Banking
 Investment Banking – Capital
Markets
 Trading and Speculation
 Hedging
Chocolate – Cadburys Example
 Chocolate is made in the UK
 Raw material – Coco Beans are
needed from South America
 Instead of buying chocolate at a
fluctuating price, Cadburys will
enter into the derivatives market for
a product that will fix the price for
additional fee(s).
Nick Leeson – Barings Example
 Investment bank is brought down
due to a rogue trader who confirmed
his own trades.
 Large futures trades sensitive to
changes in price of underlying asset
led to big losses
Quality Gates
 Four Eyes Principle – supervisory
checks to maintain audit trail
 Kyc – Know your customer
 Dodd Frank – OTC markets being
forced to go through regulated
exchanges to prevent big losses.
 Basel committee recommendations
Lehman Brothers example
 Investment bank collapses.
 Credit Defaults triggered large
payouts that the bank could not
guarantee
 Counterparties exposed to Leemans
triggering systemic risk
Topics
 Settlement t+2 for FX (exceptions
CAD)
 CLS – continuous link settlement –
organisation that facilitates FX
settlement and reduces settlement
risk
Topics
 Quantitive easing – effects on exchange
rates
 Static Data – reference data
 Reuters/Bloomberg for pricing
 SWIFT – confirmations gateway MT/MX
 Trading book – hierarchy of trade
activity
 Netting – aggregate settlement
 Matching Confirmations Process
Terminology
 Nostro – our account, at our agent
 Vostro – cpty’s account with agent
 Loro – cpty’s account held with our
organisation who is an agent
 STP – Straight Through Processing
 Netting – an agreement to aggregate
the transactions for net settlement
Quiz
 What is the difference between Front
Office and Back office?
 How would you describe Middle Office?
 What products are traded in Capital
Markets?
 What typical attributes make up a SWIFT
message?
 What is benefit of netting?
 What are Chinese walls at Investment
banks?
Quiz
 What does it mean to Settle a trade?
 What is a confirmation?
 What is a counterparty?
 Can you give some examples of static
data?
 What is STP?
 What in terms of financial reporting is
the main difference between a derivative
and an equity?
Quick recap of topics covered in the session
Trade Lifecycle
 Happy Day workflow scenario
 Rainy Day scenario
 Counterparty becomes insolvent
 Incorrect Static Data propagation
 Rate tolerances breached
Many considerations
for Test Scenarios
Cashflow and security movement
 All transactions have movement of
cash and / or security
 Cashflows are basic building block
for valuation purposes
 Discounted Cashflows used to
compute net present value
Delivery Concepts
 Deliver Against Payment (DAP) –
Security and cash exchanged
simultaneously
 Delivery Free of Payment (DFP) –
Security and Cash are exchanged
independently (carries more risk)
 Contingent accounting – used to build
up general ledger to represent the trade
as it is confirmed and settled
Bond Example
 Bonds entitle buyer to interest payments
according to the bond definition
 Bonds are issued by governments and
corporations to raised debt
 ISIN – unique number to identify the Bond
 Coupon – term to denote the interest payable
 Value of the bond is inversely proportional to
interest rates.
 Yield curves are used to create net present value
computations
IRS – Interest Rate swap
 Two parties in a transaction where
one party pays fixed rate of interest
and the other pays floating rate.
 Used by companies to hedge against
interest rate movements
 Or to raise capital by companies who
are lower credit grade clients
OTC – over the counter
 OTC – over the counter products allow
the counterparties to agree flexible
terms and conditions
 Exchange traded – product conditions
are determined by the exchange
 CCP – Central Counter Party – Rapidly
becoming the new infrastructure for
settlement.
Forward Products
 Forwards are products where the
price and conditions are agreed today
for a future settlement
 Used for hedging purposes to avoid
fluctuations of rates and prices
 Also can be used speculatively for
trading purposes
Repo Products
 Repurchase Agreements –
Agreements where on counterparty
lends the other a sum of money
which is backed by collateral from
the other counterparty
 Used frequently for Short Term
financing by large investment banks
Buy/Sell Back Products
 Repurchase Agreements
 Short Term financing
Option Basics
 The right but not the obligation to
buy or sell an asset at a given strike
price and date schedule.
 European – one fixed exercise date
 American – can be exercised on any
date to expiry
 Bermuden – a schedule of expiry
dates
Terminology
 Arbitrage – small differences in rates that allow
you to simultaneously buy and sell an asset to
capitalise on the rate difference.
 Short selling –selling an asset even though you
may not own the asset by taking a speculative
view on where the market is heading.
 Novation – transfer of ownership
 LIBOR – Committee that sets the interest rates
 ISDA agreement – legal framework for
trade confirmation and settlement
Terminology
 Equity option – put / call
 Exercised options - American ,
Bermudian, European
 Swaption – the option to exchange
fixed for floating in a swap trade
 Asset swap – exchange the income
stream from an asset pool to a cash
income stream
Goals and Objectives review and what’s next?
Goals and Objectives
 Review the Sticky
notes
 Did the course meet
your goals and
objectives?
 Feedback will be
requested via email.
Recommend us?
 Recommend your friends and earn some
incentives:
 iPad
 Kindle
 Android Tablet

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Workshop hosted by Time2test Limited in conjunction

with Asymilate Limited

www.time2test.co.uk – Time2test Limited © 2013, 2012 1

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