Standards for Securities and ResearchStandards for Securities and Research“RIXML – Research Information eXchange Markup “RIXML – Research Information eXchange Markup

Language – Present, Past, Future”Language – Present, Past, Future” Session 3.1.2 Session 3.1.2

Michael Skutinsky, Jr.Executive Director

RIXML.orgwww.RIXML.org

May 3, 2006

What is RIXML?What is RIXML?

An open industry standard that provides for extensive metadata tagging to any piece of investment research, in any form or media, with significant detail for end users to quickly search, sort and filter aggregated research

The indexing that describes the content and context of the document, not the document itself

A standardization of terms and rules that enables clear description of investment research data

What RIXML is notWhat RIXML is not

RIXML is not: a search engine a data repository a front end application a definition of format or content of documents a resource format or document type a data transmission definition

What is RIXML.org?What is RIXML.org?

The organization

RIXML.org is a consortium of research producers, research consumers, research vendors, and technology companies

investment managers

brokerage firms

independent research providers

aggregation and distribution vendors

software and market data firms

RIXML Membership OverviewRIXML Membership Overview

The ProblemThe Problem

Information overload

Over 2.5 million documents published by sell-side members of RIXML

Buy-side e-mail inboxes and faxes strain under the weight of content being sent from analysts, salespeople, auto alerts, etc

Voicemail boxes saturated in the early morning

No standardization across the industry

Lack of a common metadata format among publishers

Aggregators each have their own metadata “standard”, and it is usually less rich than those of the individual publishers

Net result is poor search criteria, leading to lowered expectations, and reliance on rudimentary symbol and author searches

How It WorksHow It Works

Product

defined as any research publication, e.g.: morning meeting comment, industry report, conference invitation, company model

Packages

Sourcedefines who

published and authored the

product

Contentcontains the title of the content, an

abstract and synopsis, and its

location and status

Contextcontains metadata

categorizing the content

Legalcontains copyrights,

disclosures and disclaimers

How Did We Get Here?How Did We Get Here?

Let’s turn the clock back 21 years . . . to 1985!In 1985:

Ronald Reagan was President

Soviet leader Chernenko dies and is replaced by Mikhail Gorbachev

Unemployment was at 7.2%

Amadeus won the Oscar for “Best Picture”

San Francisco 49er’s win the Super Bowl against the Miami Dolphins

1985 must have been a great year. Highlighted by both “Bowling for Soup” and “SR-71”:

“Bruce Springsteen, Madonna, way before Nirvana, there was U2 and Blondie and music still on MTV.”

Financial Services HistoryFinancial Services History

Financial Industry Benchmarks - 1985

The DJIA at year end was around 2000 (after surging from the 800s in the early 1980s)

A “heavy” trading day on the NYSE was around 39,000,000 shares.

The IBM PC was about 3 years old, and a 10MB hard drive cost around $6,500.

The “technology” vendors in the Research departments were DEC, Data General and Wang.

HTML, XML, PDF, and, the Internet were not yet born (as we now know them)

AND, two guys named Jeff Parker and Bruce Fador were going around Wall Street pitching an idea about sending “Morning Call Notes” via a system called “FIRST CALL.”

Financial Services History (cont’d)Financial Services History (cont’d)

First Call, in 1985, provided the first “coding” schema for Research “Morning Call Notes”

4 Tags: Broker Name, Analyst Name, Ticker, Date

These “tags” became the distribution skeleton that the Industry built on over the next 20+ years.

We took that skeleton and bolted on new Industry types (Educational Services), we cut and diced new Sub-Industries (Internet, B2B, B2C), and we discarded whole Sectors/Industries (Coal, Data Processing, Auto Parts)

BUT THE DISTRIBUTION SKELETON STILL SURVIVED, much too rigid to change very fast with the times.

Research Issues in 2006Research Issues in 2006

Michael Ross, VP – Tabb Group

Equity Research model is “dead.” In the past 10 years, investors have migrated towards passive investment strategies, lower transaction costs, and self-directed electronic trading.

Fidelity’s 2005 agreement with Lehman Brothers and Deutsche Bank to unbundle research payments (and more to come…).

Alpha – Portion of investor’s return attributed solely to the skills of the manager.

Beta – Returns of the overall market cornerstone of passive investment

Research Issues in 2006 (Cont’d)Research Issues in 2006 (Cont’d)

Over supply of large cap research

Compressed commissions due to electronic trading

Downturn in broker revenue

Shares traded = research revenue Large float stocks are more appropriate for low cost channels, further

decreasing the commission pool for research.

ATTITUDES:

By focusing on commissions, you miss the more difficult costs – market impact and opportunity costs.

Active managers will pay for “alpha research”

Passive managers won’t be saddled with expensive research that does not add value.

Research Holy GrailResearch Holy Grail

“Value added, timely research that is thematic in nature and not maintenance oriented.”

Just In Time (JIT) Research

Send out 50 titles, get interest feedback, write reports.

FutureFuture

RIXML gives us a chance to redefine that “distribution skeleton,” in total, for the first time in over 20 years.

RIXML has over 660 enumerated values in the latest schema design version 2.2.

RIXML has addressed over 7 asset classes and will “drill down” through them in 2006.

RIXML is focused on the Research product and stays true to its original intent by not going beyond what it was formed to address.

In conclusionIn conclusion

RIXML is a unique opportunity for the industry to improve research classification, tagging, and distribution.

It provides benefits to the buy-side, the sell-side, and third-party vendors.

The organization is now focused on promoting adoption of the standard. A “RIXML Level One” product will be announced in the very near future.

Visit UsVisit Us

www.rixml.org

The RIXML.org Web site is the primary communications forum

Discussion groups for general and specific topics

Notification of updates to the specification, upcoming events, membership info, etc.