Paul Middleton and Simon Rees-Goddard, vps at Sapient Global Markets, answer SCI's questions

Q: How did Sapient Global Markets become involved in the structured credit market?
SRG: Sapient Global Markets has been working with institutions involved in structured credit for over 20 years. Our unique perspective - born from being closely aligned with both market participants and system providers, intermediaries and regulatory bodies - enables us to provide a differentiated service to clients that spans the entire project lifecycle. Our typical involvement includes advising clients on setting operational targets - often that then need to be agreed with regulators - then determining, developing and implementing the right technology and process to achieve those targets, before measuring the impact and benefit.

PM: The group employs 3000 people across Europe, the Americas and Asia. Our clients include large investment banks, hedge funds, asset managers, utilities, and oil and gas companies, as well as a number of regulatory bodies. We look to engage at the senior level and deploy from a strategic perspective.

Q: What are your key areas of focus today?
SRG: Our business adapts to client and market need. Today, a lot of that stems from changing derivatives industry commitments, which have, over the years, morphed into a roadmap to adoption. The whole market is undergoing a sea-change and our business is designed to help clients meet these challenges, streamline processes to become best in class and help them capitalise on any opportunities that may arise.

PM: Regulatory change has brought an added imperative for clients to understand their portfolios and demonstrate this by transparency of approach. Within structured credit specifically, we have specific service offerings that review complex portfolios for completeness and accuracy of bookings. We combine these services with wider advisory services around, for example, valuations and workflow optimisation.

SRG: The onus is on getting it right first time, which involves beginning with the correct data and then getting the product hierarchy right. Conceptually, it's like an inverted pyramid: if the systems and controls are right, it's possible to do less to the trade as it goes through the trade lifecycle and you end up with a clearer picture on which to report.

This sometimes involves undertaking a detailed root cause analysis to identify any problems in the process. In terms of valuations, for instance, it is possible to take remedial action and ensure that the right checks and balances are in place. But this isn't always the case, and firms should be looking at how best to achieve transparency in order to meet new reporting and compliance requirements.

Q: How do you differentiate yourself from your competitors?
PM: We add value by understanding our clients' critical issues and investing in the appropriate people/knowledge. We've achieved this by developing specific practices with expertise in particular areas of concern to the industry and across the entire trade lifecycle. Today, these are areas such as market initiatives, trade documentation, valuations and risk assurance. Each of these practice groups has the ability to deliver end-to-end projects, including technology, programme management, advisory, analytics and operations services.

As part of this, our staff often chair industry committees and, as certain challenges arise, practices can be established with the relevant expertise to deliver a wide range of solutions and services. The delivery methodology is based on quality control and client feedback.

SRG: Another differentiator is our burst capacity - in other words, the ability to bring additional resources where necessary. Within structured credit, for example, we have teams that are able to support the whole post-trade transaction management lifecycle - delivering either an in-house or outsourced solution. We recognise that we have to be flexible to change with the times and scalable to meet regulatory changes, as well as any up-tick in volumes.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
PM: Some of the key challenges for the derivatives industry at present are clearing, workflow optimisation and regulatory reporting. The areas where banks are investing significant amounts are market infrastructure and market initiatives. We're spending time with clients, planning their responses to regulatory change across multiple complex projects.

SRG: The 'eureka moment' for the industry was when banks recognised that they are only as good as their counterparty. So we've worked closely with regulators, industry associations, member firms and service providers to firm up solutions to this issue.

Q: What major developments do you need/expect from the market in the future?
SRG: The need for regulatory change has been accepted by the industry, but uncertainty remains about what shape it will take in the future. Compliance to current and future regulatory requirements will be an area that continues to gain momentum and that drives the majority of thinking as the market endeavours to re-establish trust.

PM: Going forward, firms will also look even more closely at trade lifecycles and transaction management. For example, there will be a greater emphasis on identifying portfolios that are in run-off and whose management can be outsourced to create economies of scale. However, as clients seek to drive down cost per trade, there are compelling reasons to outsource any number of trade lifecycle functions or repeatable activities.

CS