Software Quality Assurance in Russia for Global Financial Markets Iosif Itkin, Managing Director, Exactpro Systems LLC Russian 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!