August 11, 2008

In a move to add expertise in derivatives operations, Boston-based consultant Sapient acquired London-headquartered Derivatives Consulting Group Limited (DCG), last week for an undisclosed price. DCG provides derivatives consulting and outsourcing services to investment banks, hedge funds, asset managers and commercial banking clients.

"We see a lot of synergies with DSG," says David Donovan, VP and managing director of Sapient's Trading and Risk Management practice, which will house DCG. "It gives us an end-to-end solution from the front "office to middle-and back office," says Donovan.

While Sapient is one of the first consultants to be used by investment banks to offshore their front-office applications and operates an offshore facility in India, says Donovan, "DCG brings very deep expertise in operations around processing of these derivatives," he adds, which he calls a niche market.

On the operations side, DCG has worked with broker dealers and asset managers in terms of supporting their outstanding confirmations and settlement breaks, says Paul Middleton, VP of Sapient, who specializes in derivatives. "Where there is operational risk, we put teams of trading consultants in there to address this," says Middleton.

On the consulting side, DCG brings in ex-derivatives practitioners who are able to go into institutions and understand their internal control environment, the level of OTC volume they're going to be doing and assess their systems needs, says Middleton. In addition, DCG has a strong history of working with Markit Partners on monthly statistics analyzing the operational performance of banks, says Middleton.

Even though there is a high barrier to entry in derivatives TRM, Sapient says it can combine its business and technology practice with DCG's expertise in operations metrics. Unlike some of the offshore outsourcing competitors like Infosys and Wipro that do more BPO (business process outsourcing) functionality, which Sapient executives say is more lower-level, Sapient is currently working with global investment banks on transitioning their front-office derivatives applications to offshore and near shore locations.