Gerrard Mahony, business development manager at Riskart, answers SCI's questions

Q: How and when did Riskart become involved in the CDS market?
A: Riskart is a highly focused Italian-based company concentrated on providing efficient OTC derivatives processing and administration to the middle and back offices of banks, fund management companies and corporates. We became involved with the CDS market several years ago as our clients began using CDS as an effective means of hedging their investment risks by means of this flexible and versatile instrument. For several clients, the move into CDS was triggered by their front office or portfolio managers and Riskart was called upon to provide an effective solution and consultancy to back office operations, so that the processing of these instruments could be stream-lined and inserted into the overall back office workflow.

Q: Which market constituent is your main client base?
A: Riskart basically works with any financial company or operation that trades or invests in OTC derivatives. More specifically, we work with banks, brokers, fund management companies and corporate clients. Clearly, in terms of back office administration of OTC derivatives, each of these categories may have different requirements (for example, fund companies require a daily net asset value calculation), but the flexibility of the Riskart software platform means that individual requirements in terms of specific functionality or workflow design may be easily catered for.

Q: Do you focus on a broad range of asset classes or only one?
A: Apart from CDS, our strong specialisation means that Riskart focuses on the broad universe of OTC derivatives and structured products, including but not limited to IRS, FX swaps, cross-currency swaps, equity swaps, index swaps, caps, collars, options and various structured products and the underlying financial instruments (bonds, equities, forex, deposits, indexes etc). In fact, we pride ourselves on the ability to process "any instrument that generates a cash flow".

Q: How do you differentiate yourself from your competitors?
A: I would sum up our key differentiators in three words: knowledge, adaptability and service. 'Knowledge' because we have been in this specific segment of OTC derivatives processing for the past 15 years and this accumulated knowledge and expertise is placed at the full disposal of our clients.

'Adaptability' because our software platform's key benefit is the ability to integrate variations on or completely new derivative structures without having to resort to re-programming the software, thus guaranteeing that the middle and back office can keep pace - easily and in a cost-efficient manner - with the evolution of the financial markets. Lastly, 'service' for us does not simply mean, for example, an efficient help desk service, but it is viewed as a commitment to a long-term client long-term relationship in which the service provided by Riskart focuses on constantly and proactively optimising client workflow and back office efficiency.

Q: What is the firm's key area of focus today?
A: Our focus at the moment is on building upon our first-in-class OTC derivatives processing platform to help clients resolve other key pain-points in the back office in adjacent areas such as reconciliation, efficient collateral management and netting in order to optimise liquidity management. Contrary to the general perception, the level of automation in the back office - above all in the OTC derivatives area - is far from complete and the application of Riskart's knowledge and experience to these areas is a natural extension of our current approach focused on increasing clients' operational efficiency.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: The main challenge in this area at the moment is the pending international reform of the OTC derivatives markets. This reform will have a radical impact on how clients manage OTC derivatives and will require them to undertake a complete review of current processes and software applications.

This reform, however, is not just another 'compliance cost' for clients, but can also represent interesting new business opportunities. We believe that Riskart has the ability and experience in this area to help clients fully understand the implications of the reform and plan adequate solutions. For example, one key element often overlooked is that the regulatory authorities are not planning a 'big bang' approach, but clients will need the ability to simultaneously manage for many years both 'standardised' OTC contracts together with bilateral OTC contracts.

On this and many other issues, Riskart is taking a proactive role in helping clients to prepare for the challenges posed by the reform, so that they can ensure full operational efficiency and as low an impact as possible on costs.

Q: What major development do you need/expect from the market in the future?
A: The planned regulatory reform means that for many aspects the markets are in a 'wait and see' mode. However, for a company like Riskart, it is not so much a question of expecting or waiting for a major development from the market, but it is about being constantly updated and ready to provide quick and innovative solutions so that issues in middle and back office operations do not hinder clients' ability to take rapid decisions based on business opportunities.

The OTC markets have always been a fulcrum for the creation of new financial products. At Riskart, we feel that the pending regulation of certain OTC financial instruments will not stop the market inventing new trading opportunities and investment vehicles. So, whether it be CDS, CFDs, new forms of exotic options or structured products, Riskart's value lies in the fact that the flexibility of its software platform permits it to stay apace with whatever new opportunities the markets decide to pursue.