Software Quality Assurance in Russia for Global Financial Markets

Iosif Itkin, Managing Director, Exactpro Systems LLCRussian Investment Forum 2013, Zurich, Switzerland; July 11, 2013

Contents

• Introduction

• QA & Program Analysis

• Financial Markets Specifics

• Why Russia?

• Taxation in Russia

Our company

• Exactpro Systems LLC, head-quartered in California, USA, started in 2009; currently near 200 software development and testing specialists;

• Software verification services to world’s leading stock exchanges, brokers, investment banks, inter-dealer brokers and trading software vendors;

• Trading, Risk Management, Post-Trade domain knowledge, Functional & Non-Functional QA, test automation, latency measurements & capacity planning, behavioural testing for smart order routing and algo-trading systems, process audit and coverage analysis

Our company• Three software development centres in Russia registered as

Innovative Trading Systems LLC:

We are there to serve as an effective test partner to companies

seeking to implement electronic securities trading, risk management,

and post-trade platforms.

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.

Perspectives on Quality

Perspectives on Quality

Quality Impact

Minimal

Quality Impact

Minimal Life & Health

Quality Impact

Minimal Life & Health

Lots of Money

Financial Markets

• Hundreds of millions of orders per day;• Micro-bursts with thousands of transactions within

milliseconds;• Latencies 3,000 times faster than the blink of an eye…• …and equal to time it takes a flying passenger jet to cover

the distance of 2.5 cm

Program Analysis

Program Analysis is the process of automatically

analyzing the behavior of computer programs.

Software Quality Assurance for financial markets

requires automatic program analysis, as software

problems tend to occur at the confluence of functional

and technical behavior of the complex transactional

systems.

Made in Russia

Case Study: Verify how an Exchange Platform would operate if 300,000

transactions per second from thousands of heterogeneous

participants occurred; measure response times with

microsecond precision.

We developed a state-of-the-art Load Injector that requires just

two servers to perform this task.

Made in Russia

Case Study: Re-certify hundreds of Clients connected to a brokerage

system after a major back-end platform upgrade.

We developed a tool to capture all Client interactions over

multiple protocols, which is capable of replaying the logs and

re-certifying each client in an unattended mode.

Made in Russia

Case Study: Validate a Market Surveillance system

We are building a model based system capable of cross

checking surveillance alerts related to prevention of market

abuse that are based on fraud detection logic.

Made in Russia

Case Study:QA for a new Clearing or pan-European Settlement

system

We developed a test harness which verifies all business flows

related to trades input, position management, margin calls,

collateral, settlement, etc.

Why Russia?

• We like to break things;• We like to criticize the rest of the world;• We like to find flaws in ourselves;• We like to redefine things and to re-invent them in

our own sovereign way

Why Russia?

• We like to break things;• We like to criticize the rest of the world;• We like to find flaws in ourselves;• We like to redefine things and to re-invent them in

our own sovereign way

This kind of attitude is required to perform Quality

Assurance and to develop the best program analysis

software!

Why Russia?

• Strong ties between software development employers and local universities;

• Software development employers teach software testing and software development at the universities and hire the best;

• Enjoyable working environment; specialists who are willing and capable to deliver are rewarded.

Why Russia?

Passion for software testing:many online software testing aficionado communities have

sprung up in Moscow, St. Petersburg, Novosibirsk, Kazan,

Nizhny Novgorod, and in Kostroma

http://clubqa.ru/site/

Why Russia?

Serious about software development and testing:many industry conferences take place throughout the

country every year

www.extentconf.com

http://tmpaconf.org

Taxation

• Social Taxes

• Value Added Tax

• Profit Tax and Transfer Pricing

Social Tax

Accredited IT providers are able to reduce their pension and

social insurance fund payments

• Below 563k pa: 14% vs. 30%• Above 563k pa: 0% vs. 10%

Software development and testing companies with 30+ staff

enjoy substantial tax benefits for all salary ranges

Social Taxes

Accredited IT providers are able to reduce their pension and

social insurance fund payments

• Below 563k pa: 14% vs. 30%• Above 563k pa: 0% vs. 10%

Software development and testing companies with 30+ staff

enjoy substantial tax benefits for all salary ranges

But, you need to start from 30 people and never use

the word “consultancy” in your contracts

Value Added Tax

Program analysis means developing software programs to

verify other software programs, so it falls under the same

criteria as software development.

VAT is applicable when software development and testing

services are used on the domestic market. If an IT company

exports its developments, VAT is not imposed.

Value Added Tax

Program analysis means developing software programs to

verify other software programs, so it falls under the same

criteria as software development.

VAT is applicable when software development and testing

services are used on the domestic market. If an IT company

exports its developments, VAT is not imposed.

The situation is more complex with manual software testing.

On the one hand, it is clear that it is part of software

development and data collection/processing. On the other

hand, the Russian tax authorities tend to treat it differently

Profit Tax

• Lets consider transfer pricing when you have a software

development center in Russia.• Due to complexity and absence of uniformity of software

development and testing services it is very difficult to use the first two of priority transfer price calculation methods: CUP and resale price.

• Cost Plus method seems to be the most appropriate.• According to Russia’s Federal State Statistics Service, the

average profitability of software development services in Russia is slightly below 10%.

• This figure can be used as the basis for applying the Cost Plus method.

Future Outlook

The program analysis industry in Russia

will continue to evolve at a considerable rate

Questions and Answers

Thank you!