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2.27. Standard
A standard sets out specifications and procedures designed to ensure that trading/
investment system design and development processes, trade selection, position management,
or risk management algorithms meet their respective purposes and consistently perform
to intended use. Standards solve issues ranging from efficient development to addressing
investor suitability concerns. Standards also simplify trading/investment system design
and development and reduce non-value-adding costs.2.28. Statistical Process Control
Statistical process control (SPC) is a method for recognizing and controlling special
causes of variation in a process, often with control charts. By using the central limit theo-
rem, SPC controls processes with stochastic outputs. When the mean of samples from a
process shifts (say plus or minus three standard deviations), we consider the underlying
process to be out of control.2.29. Timeboxing
Timeboxing fixes the completion date for an iteration, or loop. (An entire project may
also be timeboxed.) If the planned requirements for a loop in the spiral cannot be met
within the timebox, the scope should be reduced to meet the completion date. In this
way, each intermediate prototype or implementation of a trading/investment system will
always be stable and tested, and delivered on time. Of course, over our four-stage meth-
odology, all timeboxes need not be of the same length. Nevertheless, shorter, simpler iter-
ations are better than long, complex ones. In the end, timeboxing will increase focus and
productivity.2.30. Top Management
Product teams operate trading/investment system value streams. Top management has the
authority and responsibility to oversee and direct the activities of product teams. Within
its function, top management provides seed capital for trading/investment system devel-
opment and either provides investment capital with its own funds or gathers investment
capital through a distribution network. Additionally, management oversees the peer review
function for selection of trading/investment systems as well as management of the port folio
of new and working trading/investment systems. At many firms, the management function
is performed by a cross-functional peer group acting as a product approval committee.2.31. Trading/Investing
We define three stages of a trading or investing system:1. Shadow trading , sometimes called paper trading, is simulated trading, where a
system generates real-time signals, but executes only dummy orders.2.31. T RADING/INVESTING