FOCUS Independent Software Testing – Blog

The failure mode and effects analysis and a variant including criticality analysis (FMECA) are iterative activities, intended to analyze the effects and criticality of failure modes within a system. The application of these analyses to software is sometimes termed SFMEA and SFMECA where S stands fot software.

Testers must be able to contribute to the creation of the FMEA document. This includes understanding the purpose and application of these documents as well as being able to apply their knowledge to help determine risk factors.

Areas of application:

FMEA should be applied:

1. where the criticality of the software or system under consideration must be analyzed to reduce the risk of failure.

2. Where mandatory or regulatory requirements apply

3. To remove defects at an early stage

4. to define special test considerations, operational constaints, design decisions for safety critical systems

Implementation steps:

FMEA should be scheduled as soon as preliminary information is available at a high level and extended to lower levels as more details become available.

For each critical function, module or component, iteratively:

1. Select a function and determine its possible failure modes, i.e. how the function can fail.

2. Define the possible causes for those failures, their effects and design mechanisms for reduction or mitigation of failures.

Befenits and Costs:

FMEA provides the following advantages:

1. Expected system failures caused by software failures or usage errors can be revealed.

2. Systematic use can contribute to overall system analysis

3. Results can be used for design decisions and justifications

4. Results may be used to focus testing to specific areas of the software.

Thanks,

 Arun

www.focustesting.com

Acceptance Period

In case of a tender offer or miscelanous offer, the accetance period is the period in which shareholder can accept the offer. They would usually do so by sending an instruction to their broker or custodian.

Acquisition

When one company takes over another company.

Actual settlement date

The actual settlement date is the date at which securities and cash factually settle in the account of the counterparties in a trade. Depending on which market, a trade settles 2-, 3- or even more days after the trade date. Please also refer to Trade date, Contractual settlement date below in this list.

American style Options

Option contract that is exercisable at any point in time during the exercise period. A European style option is only exercisable at the expiry date.

Announcement

The date at which a corporate actions event is officially announced. The announcement can either be made by the issuer or by the lead agent in the market.

At the money

One of the three forms of moneyness of a derivative (in-the-money, at-the-money and out-of-the-money). When “at-the-money”, the price of the underlying security is exactly the same as the strike price of the derivative.

Autocompensation

In some markets the Central Securities Depository (CSD) will autocompensate for trades that trade and settle over the exdates (resulting in claims). In effect this means that for every trade that settles over the exdate, it will consequently debit the seller the entitlement that was attached to the shares and credit the buyer with it. The attached entitlement could for example be a right in the case of a Rights Issue or a cash proceed in the case of a Capital Return event. The advantage of this is that both the seller and the buyer only have to reflect what the CSD has done (for which they will receive SWIFT message confirmation) in their own books rather than having to contact one another to claim from eachother.

Basket

A group of securities that can be traded, managed and tracked as one entity. Also derivatives can be issued relating to a basket of underlying securities. One of the aims of creating a basket is to spread risk.

Bearer shares

Securities can either have “bearer” or “registered” form. Let’s imagine that in the past, when securities were in paper form, a shareholder would go to his bank and take the paper with him to collect for example a dividend. As proof that the dividend was paid out, the bankemployee would tear off one of the many coupons from the share. The name of the shareholder was not registered anywhere by the issuer of the security. The bank could go to the issuer and exchange the coupon for the dividend payment.

Bookbuilding

Sometimes, for example in a rights issue event. the price at which shareholders can subscribe to new shares is being established by calculating the weighted average of shareprices and trading volumes over a certain period of time. This method of calculation is called bookbuilding.

Call Option

A contract giving the investor (the buyer of the call option) the right, but not the obligation, to buy shares at a fixed price (the strike price) within a certain time frame (up to the expiry date of the contract).

Capital Gains Tax

The tax that needs to be paid over profits that were made from holding securities – ie a percentage has to be paid over the difference between the price at which a security was sold and the price at which is was bought. Several Corporate Actions events result in profits over which capital gains tax needs to be paid. Please refer to our TAX section for more info. 

Claims

Due to the Settelment Cycle, trades can be traded “over ex”. This means that the security was purchased with the entitlement, but that the entitlement will get distributed to the seller, because he will still have the shares in his account on the record date. The buyer has to claim the entitlement from the seller. In corporate actions claims result in two types of actions: Compensations and Transformations.

Compensations

Compensation is the amount of money or amount or additional securities a purchaser receives from the seller if he had bought the shares before the exdate of the event and the shares settled in his account after the exdate.

So for example: Person A buys 100 shares from Person B before the exdate of a cash dividend. The shares and the price he pays for them however, settle after the exdate. This means that the seller of the shares will receive the cash proceeds as a result of the cash dividend, while the buyer is entitled to them. The buyer has to CLAIM the cash proceeds from the seller.

Cum

Cum is Latin for “with”. When one is trading shares “cum” it means that one is trading the shares “with” the entitlements to a certain corporate actions event. When one is trading shares “ex” it means that one is trading the shares “without”the entitlements to a certain corporate actions event.

Convertible Bond

A bond that may be converted into a fixed number of shares (sometimes at a fixed price). There can be certain timeframes in which conversion is not permitted during a year. Sometimes conversion is only possible at a certain date(s) during the year. If the Bond has not been converted into shares at maturity, it will be redeemed for cash just like any normal bond. Convertible bonds pay interest just like normal bonds.

Coupon

A numbered part of a security on which interest is being paid out.

Data Vendor

A company the sells information about corporate actions events to the financial services industry.

Default

Default refers to the course of action that will be taken in case no instruction is received from the shareholder as to what decision to make.

Dept

The sum of all liabilities of a company

Distribution

The delivery of the cash and stock proceeds as a result of a corporate actions event.

Dividend

The part of the nett profit of a company that will be paid out to its shareholders

DRIP

Short for Dividend Re-Investment Plan

Election

In voluntary events and in mandatory events the holders of the security are being given a choice and consequently they have send an instruction with their decision.

Emission

Issuance of new (primary emission) or already existing (secundary emission) shares, bonds or other securities.

Equity

The sum of all possessions of a company

Excercise

Making use of your right (for example to buy shares at a given price)

Exdate

the date at which a stock will trade “cum ex” (without entitlement). So for example in a normal cash dividend, if the exdate is 25.11.2008 then the stock will trade without the right to the cash dividend from the 25.11.2008 onwards. Cum (latin for with) and Ex (latin for without).

Expiry date / Expiration date

1) The date at which an option or a warrant expires, and therefore cannot be exercised any longer.

2) The date at which a Tender Offer expires, ie the day up until shareholders can tender their shares to the offer.

Fractions

In several corporate actions events, ratios are involved that will lead to entitlements that are less than one share. For example in a reverse stock split where every 10 shares entitle to receive one new share (ratio = 10:1), sharholders who hold let’s say 9 shares before the reverse split will be entitled to 0.9 shares after the reverse split. Securities are generally not tradeable in amounts less than 0, so the leadagent can chose to round up or down, or cash compensate the shareholders for fractions.

Futures

A future is a contract between a buyer and a seller whereby the buyer agrees to buy a predetermined amount of a product at a predetermined price at a predetermined date in the future. Please note the difference between a future and an option: with a future, there is the obligation to buy/sell, whereas with an option there is the right to buy/sell.

Gearing

When you devide a company’s total debts by it’s total equity you will get a percentage. The higher the percentage, the higher the risk of investing in the company.

Gross

Payments as a result of a corporate actions event can be “gross” or “net”. Gross means payment before tax has been deducted, nett means payment after tax has been deducted.

ICSD

The letters are standing for “International Central Securities Depository”. It is in fact a Central Securities Depository through which securities from other countries can be held. Most well-known ICSD’s are: DTCC, Clearstream, Euroclear and SegaInterSettle.

Income Tax

Tax that needs to be paid over income resulting from holding securities. For example; income tax needs to be paid over a cash dividend.

Interest

The percentage of the nominal of a loan that will be paid to the lender as a reward for his willingness to lend the money to the borrower.

Interim Dividend

A dividend that is paid during the cause of a dividend year. In most cases a final dividend will follow.

In the money

One of the three forms of moneyness of a derivative (in-the-money, at-the-money and out-of-the-money). When “in-the-money”, the price of the underlying security is such, that the derivative will pay out money when exercised.

ISIN

International Seucrities Identification Number. Every security has got their own unique Identification number. The number starts with the letters of the country of its main listing.

Lapsing

Rights in a rights issue event and warrants can lapse if they are not sold or exercised by the owner before the deadline. Lapsing can be either “worthless” or “versus money”. In case rights or warrants lapse worthless, they will just be booked out of the account of the investor free of payment on the day they lapse. In case of for example a rights issue the rights can be bought by interested parties after which they can be booked out of your account versus payment.

Lending

It is possible to lend shares to parties in the market in return for a fee. Often this is done in order to cover for “short positions” on the borrower’s side.

Long position

The oppositite of a short position (see below). The investor expects this stock to rise in value.

Maker – Checker

Maker – checker refers to the concept that everything that is being done needs to be approved by at least one other person. In Corporate Actions this is due to the perceived risk that is attached to actions that are being made.

Mandatory Event

A mandatory Corporate Actions event is an event in which the shareholder has no choice. The event will happen regardless of his approval. (most of the time mandatory event do require shareholder approval at the AGM though).

Market value

The market value of a share is the price at which it is being traded on the stock exchange. There are many methods to establish the value of a share.

Net

Payments as a result of a corporate actions event can be “gross” or “nett”. Gross means payment before tax has been deducted, nett means payment after tax has been deducted.

Nil paid

Securities can be fully paid or nil paid. Securities, like for example nil paid rights, that don’t represent a share in the issuer’s capital are called nil paid. Therefor the holder doesn’t have to pay for them.

Nominal Value

This is the value of a share when it was first issued by the company. The total nominal value of all shares represents the total nominal value of equity on the balance sheet of the company. The nominal value of a share is not the same as the market value.

Notification

An official message in which an event or an entitlement payment is announced or confirmed.

Ordinary Shares

Ordinary shares as opposed to preferred shares carry no fixed dividend obligations. Also, a dividend on ordinary shares can only be paid out after the obligations of the preferred shares have been met by the company (i.e. the dividend has been paid out on them). In case of a bankruptcy of the company, holders of preferred shares will receive payment before holders of ordinary shares will. Ordinary shares carry voting rights, which will entitle the holder to cast his vote on AGM’s and EGM’s – preferred shares usually do not carry voting rights.

Out of the money

One of the three forms of moneyness of a derivative (in-the-money, at-the-money and out-of-the-money). When “out-of-the-money”, the price of the underlying security is such, that the derivative will be worthless when exercised.

Preferred Shares

Preferred shares will have fixed terms which have been negotiated between the investor that holds them and the company that issued them. Terms can include obligations to pay dividends on preferred shares before paying dividend on ordinary shares. In case of a bankruptcy, preferred shares rank higher in priority to receive payments (after bond holders – but before ordinary shares holders). Preferred shares carry no voting rights. Usually preferred shares get converted into ordinary shares after a certain period.

Quorum

The minimum amount of shareholders that need to attend the annual general shareholders meeting (AGM) in order for the the voting points – that were voted in favor for – to become legally binding.

Record date

The date at which your positions will be recorded in order to calculate your entitlements. So for example; if the positions in your account on record date are 100,000 shares and a cash dividend pays EUR 0.25 per share then your entitlement will be calculated as 100,000 x EUR 0.25 = EUR 25,000.

Equity Trade Life Cycle

An equity also known as share, stock or preferential share is defined as an equal portion in a company’s capital that is sold and traded in the capital markets.

In India, BSE (Bombay Stock Exchange) and NSE (National Stock exchange) are two main capital markets where these equities are freshly issued and traded.  The performance of any national market is measured by using their corresponding Index.

An index is defined as a barometer of a market. An index measures the performance of top Tier I & Tier II stocks that are qualified and listed in the respective stock exchange. BSE’s performance is measure using the index SENSEX (Sensitive Index) and NSE’s performance is measured using the index NIFTY (National Fifty).

Sensex is a measure of 30 top stocks across each and every sector. Similarly NIFTY is a measure of top 50 that includes various sectorial stocks in NSE.

Stock trade flow:

SWIFT (Society for Worldwide Information for Financial Telecommunication) is an authenticated messaging service between banks and other financial institutions. All settlement instructions are taken care by using these SWIFT messages. These SWIFT messages come under the ISO 15022 standards which govern the format in which SWIFT messages should be sent and received across to different financial institutions. All category 5 messages take care of the below transactions:

1. TIC – Trade Initiation and confirmation

2. S&R – Settlement and Reconciliation

3. CA – Corporate actions

The entities that participate in trade includes the following:

• Client who can either be an Investment manager, Assert Manager or an Assert (or Investment) Management Company (AMC).
• Then Custodian who can either be a broker or a dealer who would be in-charge of executing the order.
• The DP (Depository Participant) who would be responsible for trade settlement.

Traditional Trade Flow

The life cycle of a trade starts with the Client placing an order for the purchase of securities along with the price and other parameters with which the trade should be executed. This business process is known as Trade capture. The Dealer (or broker) also sends in his trade details that contains specifics such as stock details, price of trade, quantity, commission and settlement details.

The client’s trade information and dealer’s trade information is processed and matched. This is business process is known as Trade Matching. Both Trade capture and trade matching happens on the same day (T+0 – Trade Day). All such trades that are captured and matched are said to be successfully matched trades. Once the trade is matched, the dealer and the clients are informed through SWIFT messages that trade was successful.

Then Clearing happens the next  (T+1) day. Clearing is defined as a set of business processes that happens between when the order is placed till the actual clearing process happens. The cash gets settled first followed by the securities that gets deposited in the customer’s DEMAT account.

Settlement is a process by which the securities get deposited to the dematerialized (DEMAT) account of the end customer. Settlement happens on T+2th day. Recording or reconciliation process is that process that involves matching of the details that are obtained from a successful trade execution. Reconciliation happens on T+3 days. This is when the trade is considered to be complete. An audit trail based system best explains the entire trade flow process.

CA – Corporate action is defined as set of transations (either financial or non-financial) that are communicated either to the customer or the custodian through SWIFT messages. The most common corporate actions includes the below:

• Informing the customer about the declaration of divident
• Communication of an event
• Claim processing
• Instruction processing
• Reporting
• Reconciling
• Requesting for votes from the customer
• General stock performance

For further and indepth information please mail me at arun.vijayaraghavan@focustesting.com

Thanks,

 Arun

Integrated Work flow Model:

IST: Integrated system testing otherwise known as System Integration Testing is one such testing phase in which all the internal interfaces of the system is tested from both functional and operational perspective.

In IST we would concentrate more on the functionality of the system along with the integrity when it communicates with its interfaces. Functional testing techniques such as Boundary Value Analysis (BVA), Equivalence Partitioning and use case based testing, State transition table and decision table analysis. Since the system tends to fail more on the boundaries we give more emphasis on BVA and Equivalence class.

TAT – Technical acceptance testing

TAT is a testing phase in which the system is tested if it is acceptable as per the technical specifications. Once SIT is complete the system is passed for UAT or TAT. UAT/TAT is the final phases before the Production. In UAT phase, the business users typically the end users test the application from end to end business perspective.

If the system undergoes a change from the functional perspective then the system needs to be UAT’ed before the new build goes into production. But at the same time, when there are changes to the system from the technical perspective like change in the load balance of the servers, then the system needs to under go load and stress testing. These phases of testing come under TAT.

Once UAT or TAT is complete then the system would go into preproduction where the system is checked for back-out and finally it is released into production.

In other words TAT can be defined as a phase that verifies and validates the technical compliance of software regarding to the production’s standard.

Capital Markets

Financial market is a market place all financial instruments are bought and sold. Generally, all companies and government backed institutions sell their financial instruments in these financial markets to raise capital for their sort and long term financial requirements.

 Securities can be either traded through an exchange or through OTC (Over the Counter). Capital market securities are traded either in equities market or bond market depending on what the security is.

 Capital market is one such financial market where companies and institutions sell their financial instruments for long term capital requirements. Equities and Bonds are those financial instruments that are sold in capital markets.

 Equities: Equal share in the capital of the company that is traded in exchange market. Equities traded by the entity selling represents equal share of ownership in the company.

 When a private company wants to raise capital for their long term financial needs they first announce IPO (Initial Public Offer) in the exchange market. Once the IPO rates are finalized through bidding process between the given dates, the entry cost of each equity is fixed and traded to other individuals, financial institutes, AMC (Assert Management Company) through the primary market.

Primary Markets: Primary market is a capital market where all IPOs are traded. Freshly issued securities are traded in the primary market. Primary markets are also known as IPO market or freshly traded market.

Secondary Markets: A capital market in which already issued equities is traded between individuals, Institutional investors and AMCs. Secondary market is also known as after market.

Types of Equities:

Normal Shares (equities) – Shares that are issued in the primary (IPO) market and then traded normally in the

Secondary markets: All such shares have voting rights. In case when the company is dissolved, normal equity share holders get the last chunk of cash after Bond (Fixed income – FI) and preferential share holders.

Preferential shares (equities) – These are shares that are issued to a specific group and these shares have much higher priority over normal shares. Preferential share holders do not have any voting rights. Preferred share holders do not have any ownership in the company. In case the company is dissolved preferential share holders get priority of settlement next to the FI (Bond) holders.

Bond – A bond is a fixed income financial instrument which has guaranteed income after a fixed period of time. The interest that is obtained on the principle is known as a coupon. The coupon is payable to the bond holder either monthly, quarterly or half-yearly depending on what is requested by the holder.

Types of Bonds:

Government Bonds – FI securities that are issued by the government is defined as government bonds. These bonds have assured income after a fixed time period. Government is always in local currency.

Municipal Bonds – Bonds issued by Municipal is called municipal bonds. These are also called as “Munis”. These bonds have a fixed rate of interest and fixed time for maturity.

Corporate Bonds – FIs that are issued by corporate are referred as corporate bonds. These FIs are little risky compared to government and municipal bonds. Corporate bonds return much higher rate of interest when compared to government bonds or munis.

Domestic bonds – Domestic bonds are those that are issued in the domestic market by domestic players. These are issued in local currency of the country in which these are issued.

Other bonds are foreign bonds, Euro Bonds, Convertible Bonds, Callable Bonds, Puttable Bonds, Zero coupon bonds, floating rate bonds, fixed interest rate bonds.

For further information, please write to me at arun.vijayaraghavan@focustesting.com

Thanks,

Arun

A financial market is defined as a market place where all financial instruments are sold and bought.  All companies and government organizations raise capital from the public either for short term or long term financial requirements through these financial markets.

Generally, all financial markets can be categorized as below:

• Capital Market – Used to raises long term capital
• Money Market – Used to raise short term capital
• Derivatives Maket – Securities who’s value is derived from the underlaying aspect of other securities.
• Insurance Market – Selling securities which are a type of risk management
• Foreign Exchange Market - Trading one curreny against the other 
• Commodity Market – Trading common commodities such as rice, sugar, steel, etc.,

Depending on the entity’s financial requirement, they would either engage in Capital market or Money Market to raise their capital.

Please mail me in case you need to discuss on any specific topic under financial markets.

Thanks,

 Arun

From banking perspective Nostro and Vostro accounts are bank’s accounts with other banks. These accounts serve the purpose of clearing when the banks act as custodians. Let us now define these accounts:

Nostro/Vostro: Nostro accounts are those accounts held by banks with another bank. Sample scenario would be when Citibank India has an account with HSBC india, then this account is a Nostro for Citibank. But this same account is said to be a Vostro account for HSBC.

Every bank maintains Nostro accounts with other banks to serve the purpose of fund transfer in case of clearing and settlement. This is also in case of investment banks that act as global and local custodians for individuals and high net-worth investers.

For further information please write to us at: arun.vijayaraghavan@focustesting.com

Thanks,

 Arun

A test suite that exercises the full scope of a system from a top-down perspective, but does not test any aspect in detail

Testing as we all know is a verification and validation process that certifies that a product works as per the requirements. But testing as per requirements alone wouldn’t make the product stable. This is where we introduce a stage/phase that we call as Dirty testing. This phase is also known as “Creative Testing“.

Dirty testing involves testing creative side of the equivalence partation. There are certain conditions in which the application would surely break if tested with test data other than the ones mentioned in the requirements. Dirty testing also involves testing out of box. Sometimes a tester’s experience of testing similar products plays a vital role in determining the depth in which negative testing is carried out.

Let us discuss a scenario where I had employed creative a.k.a dirty testing. The requirements does not always cover every business aspect. Based on your product experience If you find any gaps in the technical & functional requirements then you are sure to find gaps in the application which would ultimatly lead of failure. 

Case Study: I was involved in the UAT phase of Testing an ATM (Automated Teller Machine) interface with Core Banking application.

All test cases where written by business users strictly based on BRD and FS. The software was strictly developed based on the BRD & FS. Not enough care was taken to program the application’s behaviour for alternative paths.

The main functions of the ATM machine are listed below:

1. Cash Withdrawal
2. Balance Enquiry
3. Fund Transfer
4. Cash Deposit
5. Mobile Phone Recharge

All test cases for the above scenarios where based on happy path and never considered the dirty path. Let us have a look at sample test cases for Cash Withdrawal:

Strictly Requirement Based Cases – Cash Withdrawal:

• Cash Withdrawal from Current account using Maestro card
• Cash Withdrawal from Savings account using Maestro card
• Cash Withdrawal from current account when there is not enough balance
• Cash Withdrawal from savings account when there is not enough balance
Cash withdrawal using a blocked card using Maestro card
Cash withdrawal using an expired card using Maestro card

Even though the above test cases covers both positive and Negative paths in the high level cash withdrawal scenario, the very aspect of alternate path is not covered. Out of my experience let me list down a sample of dirty test cases that I have come up with:

• Cash withdrawal using a utility card
• Cash withdrawal from a revolving credit card
• Cash withdrawal using a store card
• Cash withdrawal using damaged card

Well, all the 4 dirty test cases failed and the system almost crashed resulting in Sev-1 defects. Real show stoppers. This is when we decided, we would cover regular BRD/FS aligned test cases along with Dirty test cases which would surely improve the quality of the product delivered.

It would be great if you as readers can also share your experiences in creating dirty test cases. Please do write to me at arun.vijayaraghavan@focustesting.com

Thanks,

 Arun

Quality software is a piece of code that is reasonably bug-free, delivered on time and within budget, meets requirements and expectations and is maintainable. Quality is also defined as meeting the customer’s expectations the first time and every time.

However, quality is a subjective and an abstract term. Quality depends on who the customer is and their overall influence in the scheme of things. Customers of a software development project include end-users, customer acceptance test engineers, testers, customer contract officers, customer management, the development organization’s management, test engineers, testers, salespeople, software engineers, stockholders and accountants.

Each type of customer will have his or her own slant on quality. The accounting department might define quality in terms of profits, while an end-user might define quality as user friendly and bug free.