What does a quality management system in AT look like?

For automated trading, a quality management system includes processes to achieve prudent research, design, development, operation, and control of AT systems. This covers critical activities including quantitative modeling, risk control techniques, backtesting, simulated trading, and probationary trading. This also includes processes for and documentation of software and hardware testing that prove the firm has demonstrated that an AT system functions properly, is operationally safe, and robust to behave acceptably during potential extreme events. Statistical methods for evaluating the stability of AT systems and for real-time monitoring have been developed.

What’s the process the firm should go through to do all these things to justify their belief in the stability of the system? The K|V methodology (i.e. a study of methods) is such a methodology (see Quality Money Management, Elsevier/Academic Press, 2008).

AT 9000 is agnostic with respect to research, development, operation, and control methods. Thus, as a study of methods, K|V is not a prescriptive method itself.  Nevertheless, all firms engaged in AT do (or should) engage in the activities described, though not necessarily in sequence of stages and steps shown.  Firms should perform in their own study of methods, and define internal processes that satisfy a quality policy and quality objectives. These processes will be unique to each firm and its organizational environment, and potentially to each AT system R&D project. The intent is not to imply uniformity in the structure of an AT firm’s quality management systems or uniformity of documentation.

The ability of AT firms to prove the stability of their systems also depends upon the availability of execution venue (exchange) simulation facilities to fully test those systems. Such simulation facilities must enable testing against all manner of extreme market and infrastructure events.

By achieving a QMS that follows AT 9000, automated trading firms should be able to satisfy their organizational obligations to prove and document that its AT strategies and technologies will operate safely and profitably. There is also a wide body of literature demonstrating that the use of quality management systems improves financial performance.

What is a quality management system?

A quality management system (QMS) for an organization is a defined process and related artifacts necessary to implement a quality policy. Quality management is the orchestration and control of operations so that they satisfy customer expectations and obligations to stakeholders. The ISO 9000 family of standards is the most widely recognized quality management standard. Many industries where societal safety must be ensured use ISO 9000 as baseline to consistently and efficiently meet customer requirements, regulation, and broad social responsibilities. For example, here are somne industry-specific QMS that use  ISO 9000 as a baseline.

  • Aerospace: AS 9100
  • Automotive Suppliers: ISO/TS 16949 and VDA 6.1
  • Chemicals: Dow Chemical Company Quality Management System Manual
  • Environmental: ISO 14000 family
  • Medical devices: ISO 13485 and IEC 62304
  • Food safety: ISO 22000
  • Health care: the US National Committee for Quality Assurance (NCQA)
  • Telecommunication Systems: TL 9000
  • Testing and Calibration Labs: ISO 17025