1 Nov 2002: RIXML Must Overcome Chicken-and-Egg Challenge

The Research Information Exchange Markup Language (RIXML) must surmount the classic challenge of information ‘standards’ if it is to succeed, but stands the best chance of any existing standard in the research area. So says a report on the schema issued this month by Tower Group.

In the report, Tower Group says that RIXML offers the kind of functionality that will bring an element of order to a relatively unstructured area of the financial information business. It must, however, solve the issue of critical mass before it can prove to be truly beneficial to both sides of the institutional financial services industry.

RIXML is a standard that allows creators of institutional research to add intelligence to the reports they produce, enabling the resulting research content to be consumed in a more useful way. Typically, sell-side financial institutions produce research for their buy-side institutional clients – fund managers and the like. The sell side spends considerable resource on its research output.

Many sell-side firms believe that they can differentiate their services overall by offering high-quality research. Through a process known as soft dollars, they are able to secure guarantees of transaction commissions from key clients in return for providing the research for help in investment decisions.

RIXML has produced a schema for adding useful meta data to the research produced by the sell side. If adopted, this meta data will allow the sell-side institutions to help their clients make more use of the research they provide – by reducing information overload, and helping to organize relevant information and filter out irrelevant material. As such, early adopters may enjoy a first-mover advantage as institutions shift the direction of their transactions in return for higher-quality research.

Tower Group believes that RIXML, as a standard, stands a good chance of overcoming this chicken-and-egg scenario. The challenge is to promote adoption of the RIXML schema by sell-side institutions, so that benefits can be felt by the buy side and eventually filter back to the sell side in the form of higher commission revenues.

Tower Group reckons barriers to achieving this are being overcome. It believes benefits will begin to be realized during 2003. “Once early sell-side adopters begin authoring RIXML content,” the report says, “and the buy side is able to make use of the schema through vendor solutions, there will be more pressure on the remainder of the industry to follow suit.”

In particular, the report suggests that buy-side institutions may be unwilling to invest in technology solution capable of exploiting the benefits RIXML offers, at least until a substantial number of sell-side firms is making its research available in a RIXML-based format.

In terms of research distribution, the industry is currently dominated by two vendors: Thomson Financial and Multex. Thomson Financial’s First Call service invented the institutional research distribution model when it was formed in 1985. Under this model, First Call provides an electronic mechanism that allows sell-side firms to publish their research and buy-side firms to subscribe to it. It charges both sides of the equation for the ability to do this.

Multex, ostensibly founded in 1993, has a similar model, although carries fewer sell-side firms’ research. Both companies also collect and collate earnings estimates. RIXML could allow both First Call and Multex to structure the information they redistribute. The report cites the ability to manage abstracts, estimates, share information and company financials.

So far, a third vendor in the research distribution space appears to have made most progress in adopting RIXML. Researchsummary.com – launched in 1999 – recently signed a deal with Bear Stearns to offer RIXML-enabled research. However, as a relatively new entrant to the market, Researchsummary currently distributes only about a dozen firms’ research.

With other vendors in the arena committed to adopting RIXML, Tower Group believes the industry will begin offering the kinds of vendor solutions palatable to the buy-side environment. The report suggests that RIXML isn’t likely to go the way of the Investment Research Markup Language (IRML), which has been abandoned, despite its higher granularity of data management. IRML failed, says the report, in part because it was seen as a purely vendor-driven initiative; RIXML features many buy- and sell-side firms as participants. IRML also was perceived as going too far in its ability to allow users to manage the data, which may not have been in the best interests of the producers of the research.

The Tower Group report cites the Extensible Business Reporting Language (XBRL) as a possibly complementary or competitive schema. XBRL, which originated in 1999 as the Extensible Financial Reporting Markup Language (XFRML) is a protocol for reporting business information. Certainly, there is an amount of overlap between the two schemas, although the RIXML working group has committed to ensure that the two are consistent and interoperable.