capital markets testing - calypso

Workshop hosted by Time2test Limited in conjunction with Asymilate Limited

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

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

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House Rules!

Lavatories

Food and Drink in the class room

Drinks – water from the kitchen area

Fire Alarm

Room Access during lunch and breaks

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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

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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

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About me – Mitesh SoniOver 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

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About me! – Viresh DoshiOver 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

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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.

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10 mins

What do you already know about the capital markets domain? Lets talk and note down what we already know.

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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.

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Course Overview The 2 day Capital Markets Testing workshop is split into three categories:

1. Banking Domain

2. Technical Skills

3. Testing skills

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Course Overview – Banking Domain Capital Markets - what is

capital markets in the investment banking arena?

Learn about investment banking trading

Learn the different banking products (ADR

1. Equities2. Repos3. Swaps4. Bonds5. Derivatives

Learn the workflow - Trade, Transfer, Message

Learn about SWIFT messages

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Learn STP – straight through processing

Risk and Reporting - EOD Learn about these

objects(trades, transfers, messages, tasks, legal entities, tasks, legal entities)

Learn about static data Learn about netting Learn about SDI Learn about rejected trades

and resolution Learn about Front office,

Middle office and Back office

Course Overview – Technical SkillsUnix 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

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Course Overview – Testing SkillsPopular 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

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RecapIntroductions complete

Objectives set on the sticky notes

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Quick recap of topics covered in the first session

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FX exampleFX – Foreign Exchange

Trade Lifecycle – Pricing to Accounting

Front office

Back office

Middle office

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ProductsSecurities- Bonds, Equities

Derivatives

Money Markets

FX

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Areas coveredDomestic Banking

Investment Banking – Capital Markets

Trading and Speculation

Hedging

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Chocolate – Cadburys ExampleChocolate 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).

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Nick Leeson – Barings ExampleInvestment 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

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Quality GatesFour 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

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Lehman Brothers exampleInvestment bank collapses.

Credit Defaults triggered large payouts that the bank could not guarantee

Counterparties exposed to Leemanstriggering systemic risk

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TopicsSettlement t+2 for FX (exceptions

CAD)

CLS – continuous link settlement –organisation that facilitates FX settlement and reduces settlement risk

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TopicsQuantitive easing – effects on exchange

ratesStatic Data – reference data Reuters/Bloomberg for pricingSWIFT – confirmations gateway MT/MXTrading book – hierarchy of trade

activityNetting – aggregate settlementMatching Confirmations Process

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TerminologyNostro – 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

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QuizWhat 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?

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QuizWhat 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?

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Quick recap of topics covered in the session

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Trade LifecycleHappy Day workflow scenario

Rainy Day scenario

Counterparty becomes insolvent

Incorrect Static Data propagation

Rate tolerances breached

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Many considerations for Test Scenarios

Cashflow and security movementAll transactions have movement of

cash and / or security

Cashflows are basic building block for valuation purposes

Discounted Cashflows used to compute net present value

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Delivery ConceptsDeliver 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

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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

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IRS – Interest Rate swapTwo 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

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OTC – over the counterOTC – 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.

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Forward Products

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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 ProductsRepurchase 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

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Buy/Sell Back ProductsRepurchase Agreements

Short Term financing

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Option BasicsThe 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

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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

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TerminologyEquity 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

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Goals and Objectives review and what’s next?

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Goals and Objectives Review the Sticky

notes

Did the course meet your goals and objectives?

Feedback will be requested via email.

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