4th Quarter 2014, Issue 34
In this issue, we are pleased to announce the recipient of our 2014 Leadership award, we welcome ANALEC as a new member, we highlight our "Getting to Know RIXML" Marketing campaign, we highlight a recent Pensions & Investmentsarticle relating to evolving research payment models, we receive an update from our Technical & Standards Committee and we get a perspective from Jack Roehrig, Executive Director of RIXML.org.
I am very pleased to announce, as voted by our members, the 2014 RIXML.org Leadership Award recipient is Richard Brandt of Quark. Richard is the first two-time recipient of our Leadership Award. Richard has made significant contributions to our organization throughout 2014, in leading our Technology Working Groups and offering his expertise in key areas, including Componentization, the influence of HTML5, research packaging through the growing suite of channels in the mobile and social media space and enhancing our collaborative presence and member contribution through our RIXML Wiki.
Please join me in congratulating Richard on receiving this award. We look forward to a formal presentation of the award to Richard at our upcoming quarterly members’ meeting on Thursday, January 15, 2015, 10:00am – Noon(EST), hosted at Moodys Analytics in NYC.
New York, December 2, 2014
ANALEC, a leading financial technology company offering platforms and solutions to the investment research as well as the client servicing functions within investment banks and broker dealers, has become a new member of RIXML.org, a consortium of firms committed to the ongoing development and adoption for an open data standard for investment research.
"RIXML.org welcomes ANALEC as a new member," said Jack Roehrig, Executive Director, RIXML.org. "Their deep domain knowledge of the investment research industry and client servicing functions will bring value added expertise to RIXML.org and to the membership at large. We look forward to their partnering with our members."
Said Indy Sarker, CEO of ANALEC: "Given our focus is on boosting the economic value of investment research and addressing the related client servicing challenge in a broker-dealer, we believe our participation in the RIXML organization is a major step in that direction of working together at the industry level to improve ways in which data is efficiently shared between organizations. We believe the future of investment research hinges on leveraging technology in the most meaningful ways."
ANALEC will add value through direct participation in RIXML technology working groups, with their fellow members, to help develop future releases of the schema and cutting-edge delivery solutions across the ever-evolving suite of technology platforms.
Web Site: www.rixml.org
We have stepped up our Marketing efforts, through a "Getting to Know RIXML" campaign, with regularly scheduled postings via LinkedIn, with a recent posting as follows: http://lnkd.in/dUBXeae
RIXML Guiding Principle
End users must be able to benefit from RIXML without even needing to know it exists
RIXML is a technology solution to a business need – the need to better manage the huge amount of investment research that exists, and to deliver it to the end user in a targeted, precise manner.
However, this solution is implemented behind the scenes. End users will notice that their search results are getting better, or that content producers are delivering content formatted for optimal viewing on mobile devices, or that vendors are creating products that deliver better integration between investment research and other investment data, but they don’t need to know about RIXML to do so.
The RIXML.org organization is committed to ensuring that the specification provides real benefits to the end users of investment research as well as to the IT professionals who produce and manage the systems to create and distribute it.
Many thanks for the efforts of Deirdre Goldenbogen, who manages development and distribution of our Marketing Collateral & Communications
The following article authored by Rick Baert of Pensions & Investments examines the evolving ground rules for soft dollar payments for research. These developments will impact strategic research content packaging and delivery going forward.
"EU threat of soft-dollar ban still alive, raising questions for many"
Rick Baert, Pensions & Investments, November 2014
The possibility of European regulations banning the use of soft dollars for third-party research is alive and well, despite talk in the U.K. and Europe that regulators would settle for something that falls short of a ban.
Trading analysts, some of whom see as much as a 50-50 chance of a full ban, say unbundling research from commissions would end an established practice among money managers, brokers and research providers of tapping commissions to pay for research. A ban would be felt in the U.S. as well as in Europe, as managers decide whether to eat the costs of research themselves, pass the costs on to asset owners and other clients, or stop buying research altogether.
"Some global U.S.-based managers say that it'd be very challenging to run a global business that meets all regulatory regimes, so they tend to manage their business to what they deem to be the highest regulatory standard," said Tom Conigliaro, managing director and head of investor trading services at Markit Ltd., New York.
"Therefore, if the rules ... are passed as currently proposed, U.S. asset managers may choose to follow the U.K. and EU rules even if the rules remain unchanged in the U.S."
While all U.S.-based global money managers would face hurdles as a result of changes in soft-dollar rules, the impact on midsize and smaller equity managers would be far worse, said Tim Barron, chief investment officer at Segal Rogerscasey, Darien, Conn. Larger firms would have the scale to take on the added research costs themselves, he said.
"What happens to those (smaller) firms?" Mr. Barron asked. "They need to leverage the research because they don't have the scale to pay for it direct. I think you'll hear complaints from both money managers and pension funds, since you'll be locking out smaller managers. If the SEC took action on unbundling, can you imagine the Obama administration with a rule that says bigger is better? If you're looking to get more transparency on commissions, there are a lot better ways to do it."
Efforts to ban soft dollars for research in the U.S. fell short. "The SEC has looked at this issue at least six times already since 1975, and each time they have found that the current model supports research as a fundamental pillar to the asset management industry," Mr. Conigliaro said.
The European Securities and Markets Authority, the Paris-based financial regulatory agency of the European Union, is still considering an EU-wide ban on soft dollars as part of Markets in Financial Instruments Directive II. That directive would harmonize regulation of investment services across EU-member countries plus Iceland, Norway and Liechtenstein. The ESMA is scheduled to issue a revised recommendation on disclosure of research commissions by March.
The U.K.'s Financial Conduct Authority, a proponent of an outright soft-dollar ban, in June implemented research commission rules that fell far short of that goal, instead focusing on mandatory valuation of soft dollars. But because a ban is on the table at the ESMA, FCA officials are still pushing for it, albeit through the European agency. Officials at the FCA couldn't be reached for comment.
"The FCA would love to ban research commissions in the U.K.,” said Neil Scarth, principal, Frost Consulting & Advisory, London. “But they know if they did, managers in the U.K. would go to the government and say that complying with that would raise their notional management fees to a significant premium over what managers pay for research in the U.S. So (the FCA) has said they're going to abide by whatever the ESMA decides. But in reality, the FCA hasn't backed off on this issue at all."
Covering the cost
If approved in Europe, the ban would mean a lot of shifting in how research is paid for — and how managers would cover the cost themselves. Mr. Conigliaro said the estimated annual commission cost for execution and research industrywide is more than $10 billion in the U.S. and $4 billion in the U.K. If research is unbundled, about 50% of those costs would shift to money managers, he said.
Proponents of a total ban say money managers generally don't know where the money used for research goes because soft-dollar arrangements are at best opaque, and a ban would make managers more careful about how they use their research dollars, said John Colon, managing director, Greenwich Associates, Stamford, Conn.
But Mr. Colon cited a fourth-quarter report by Greenwich that warned such a ban would eliminate commission-sharing arrangements, which “would have a seismic impact on the (brokerage) industry as a whole, since revenue generation and market share among European equity brokers are largely determined by the breadth and depth of their research arms. This has significant meaning for buy-side fee structure,” Mr. Colon said, referring to full unbundling as “the nuclear option.”
"The big question is, how do you price and value research?" Mr. Colon said. "Research goes well beyond written analysis. That's like table stakes in a poker game. Managers really want to know what analysts think; talk to them; test their ideas. You need to look at research as a process, not as a product."
Mr. Barron at Segal Rogerscasey said he doesn't think it's a sure thing that the ESMA will go to full unbundling, citing opposition by national regulators led by L'Autorite des Marches Financiers in France.
Most money managers contacted for this story would not comment on what the impact of a soft-dollar ban in Europe would be, although many did indicate they would pay more for research if the ban were implemented.
However, Christopher Vella, senior vice president and CIO, multimanager solutions, at Northern Trust Corp., Chicago, said smaller U.S.-based managers won't be hurt.
"The only firms likely to face a significant impact would be European-based managers just starting out," Mr. Vella said. "The investment management business in general has very low barriers to entry. Technology costs are relatively low and most trading technology companies actually work with startups to reduce costs while they are small."
Northern Trust's multimanager program has about $75 billion in assets under management.
Theodore R. Aronson, managing principal and CIO at equity manager AJO LP, Philadelphia, said he's pleased the ESMA and FCA are pushing for a ban.
"How can you get best execution while paying someone for non-execution services?" said Mr. Aronson, whose firm manages $24.6 billion. "Soft dollars are a rip-off ... always were and always will be. ... The U.K. and the EU should be commended for doing what the SEC is too chicken to do."
This article originally appeared in the November 24, 2014 print issue as, "EU threat of soft-dollar ban still alive, raising questions for managers".
Emerging Technology Committee
Richard Brandt led one call since our last Quarterly Meeting – on September 16th. Topics of discussion mostly followed the activities of our two active working groups – Componentization and Social Media. In addition to the regular calls, the group met for an in-person workshop on July 30th at Jordan & Jordan in New York.
Componentization Working Group
Quark published a webcast featuring RIXML.org and S&P Ratings, in which they identify the top drivers for componentization.
- Decreasing commissions, creating a greater sense of urgency for research discoverability and payment realization.
- Evolving technologies causing transitional time for the research business to update delivery models.
- Increasing buy-side clients’ use of mobile devices and social networks.
- Changing channels for packaging and delivering proprietary content.
- Transitioning from document-centric toward component (unbundled) delivery models.
- Growing presence of non-traditional players in the marketplace.
Our plan for Componentization continues as follows:
- List component types: We’ve had contributions from several members and we believe we have a viable set of types with which to work.
- Leverage our RIXML Wiki, where members collaborate on content, section by section, toward the finished product – i.e. our guidelines for componentization and leveraging HTML5. We must demonstrate clarity of purpose via our documentation, and light the path for implementing teams. This is the outline we’ve adopted:
- Business issue, mission, and purpose.
- Proposed solution and details.
- Itemized component type list, describing the meaning of each type and referring to related terms.
- FAQ (after pilot program).
- HTML5 example.
- Use-cases, both production and consumption. For example, conference books, Year Ahead across sectors and regions, Morning Call, Ratings, Valuation Survey,etc..
- Productize the documentation artifacts via Deirdre Goldenbogen. Artifacts should follow the design principles Deirdre established for our RIXML v2.4 release in 1Q13.
- Pursue a pilot program with one or more member firms to model our approach. This will provide some grounding to what we expect to accomplish, and generate some "Ah, ha!" moments.
- Implement a production release of the RIXML Componentization results.
- Arrange an eSeminar to spread awareness. We’ve had some success with this format in the past, and we feel it’s a good vehicle for this introduction.
The group has made substantial progress on step 2 and is ready to pull the pieces together into a coherent story. So, we’re moving from step 2 to step 3. Richard and Sal will produce a draft, and then seek Deirdre’s assistance toward productizing the result. At Alan’s suggestion, we also switched the order of steps 3 and 4, moving the pilot after the documentation.
Social Media Working Group
Here are some of the highlights from the Social Media conversations during our working group calls and during the workshop:
- We’ve added a section to our Wiki for notes about who is doing what with research in social media. Sara has contributed some good content there.
- We may want to poll our buy-side partners on which channels they favor. We are considering a panel or webinar on this topic.
- The workflow around social media interaction is at least as important as the format.
- Compliance considerations still keep social media use in research in the early stages.
- Until guidance is available from regulators, each organization will have its own approach on how to best leverage social media platforms.
- RIXML is in a unique position to influence the social media discussion in the research context.
- Jack has met with Data-Miner, a social data search tool vendor with interest in the Financial Services space. Maribeth Martorana provided the contact there.
- Maribeth is also looking into Crimson Hexagon, a group from Harvard with algorithms applicable to the consumer space.
PLEASE NOTE: This viewpoint is entirely my own and neither the official viewpoint of RIXML.org northe viewpoint of any of its member organizations.
Since we often get sentimental and reflective this time of year(perhaps, I was visited by the Spirit of RIXML past?), I thought it would be fun to dust off a previous topic and note from <b(>5 years ago( I actually would have sworn this note was 2-3 years old---time has flown !) to re-examine the progress to date----here we go:
2009: A pivotal year for the Research business and implications for the Research "Marketing Mix" going forward
During my college days(mid 1970s), when 1200 Baud was still in the development labs and there was a breakthrough transition from Audio 8-Track(some tracks broke up the actual songs midway through playing !) to audio cassettes, I remember all business majors had to take the obligatory "Fundamentals of Marketing" course, more than likely, to ensure that marketing professors had jobs. The foundation of the course dealt with the "Marketing Mix", a term perfected by E. Jerome McCarthy in the 1960s, which highlighted the infamous "Four Ps" of Marketing: Product; Price; Place(Distribution) and Promotion.
These "Four Ps", along the lines of the letters we memorized in grade school to remember the alignment of the planets(MVEMJSUNP---My Very Educated Mother Just Served Us Nine Pickles), was sure to be embedded in our skulls by the time the final exam came along. It seems to me, while the "Four Ps' have not been kicked around a lot lately, they are alive and well and applicable to modern day marketing strategies. With that in mind, some thoughts on the "Four Ps", as they may apply to the Research business, content structure(where RIXML.org comes in----you thought I would never get there), in light of a challenging Research environment in 2009 and in hopes of an improved environment(fingers crossed) in 2010:
The Research offerings are in transition. The traditional lines, where, fundamental, quantitative, technical and strategy/economics research products were separate and distinct, are blurring. Independents, Niche/Specialty, Channel Checkers and Expert Networks have a greater role in the marketplace. TAGGING((Structure) takes on more importance as the commerce engines for these services formalize. This can only bode well for RIXML.
Progress? : RIXML recognition and adoption is widespread, with a subsequent schema release(v 2.4) and meta-data helping to enable "research discoverability".
As traditional research "cost centers" evolve to competing "profit centers", the price points take on greater urgency. While this is still in flux in the industry, the luxury of "fuzzy pricing"(on the hopes of increased buy-side business) is less likely going forward. As price points are established for content, the need for intelligence around usage(metrics) heightens---tagging(consumer bar codes) will aid this process going forward.
Progress? : Wow ! Dramatic new thinking and Strategic discussions are driving evolving payment models given regulatory influence around the use of buy-side commissions going forward, with real implications for research "packaging"..stay tuned.
I believe this has interesting and very exciting implications for the research business. It is a classic "form follows function" story. A highly tech-savvy consumer's use of ubiquitous tech tools, i.e., Blackberry, iPod/iPhone, Droids, App stores, social(professional) networks, et al, is opportunistic in impacting research distribution decisions.
Progress? : This is, perhaps, where the greatest strides have occurred---the smartphone and tablet have become the de facto workstations. The pace of technology innovation going forward is particularly exciting. We ain’t seen nothing yet...
As with the implications for innovation in the "Place(Distribution)" aspect of Research, the promotional aspects are equally exciting and will take on a new approach, in-line and likely integrated with tech solutions, i.e., blogs, ad "banners", alert mechanisms for PDA devices and more creative ways to offer "trial-balloon" products to secure the "buy-side vote". Could the Research "App store" become a reality some day?
Progress? : Hmmmm…seems this remains a work in progress…might Social Media play an increasing role? Time will tell....
Since we are at the close of 2014, I would like to cite the extraordinary contributions of our members, particularly, within our technology working groups. I never cease to be impressed by the level of expertise among those involved in these working groups, knowing this is "above and beyond" work they provide, with very limited bandwidth, which benefits all members and YOUR organization at large—I am grateful. Topics, including the impact of HTML5, the ever increasing influence of research componentization, "events" tagging, bringing use cases and "pilots" front and center, strategic discussions to leverage the mobile suite of devices, others, have become core to our efforts, with very exciting implications for 2015 RIXML.org deliverables.
I would also like to acknowledge the contributions of and offer thanks to Michael Mayhew and Sandy Bragg from Integrity Research Associates, Gabriel Lowy from Tech-Tonics, Chuck Pickelhaupt from Fidelity and David Greenfield and Alex Luxenberg from Twitter who shared their Research business and Technology insights in kicking off our quarterly members meetings over the course of 2014. Their contributions have received high praise amongst our members.
We are grateful to Deirdre Goldenbogen for her tireless efforts to enhance our Marketing presence and to further the cause of RIXML.org in the marketplace. Many thanks.
I would also like to recognize the ongoing efforts and support from our Program Office, led by Kathy McGovern and Tom Jordan, from Jordan & Jordan. Many Thanks.
I wish you and your families all the best for the holidays and a happy, peaceful and healthy 2015.
Charles Dickens, The Pickwick Papers, 1836