Business grows as regulators scrutinise research companies

New York -- Research became something of a dirty word in 2003. Indeed, in early December, the National Association of Securities Dealers (NASD) announced it had censured and fined four more firms -- notably Banc of America Securities and Axiom Capital Management -- for issuing misleading statements and research.

The regulators’ activity on this issue has spurred a number of business developments. One example is the Global Research Analyst Settlement, set up in April between the US Securities and Exchange Commission and 10 brokers. According to the terms of the settlement, which was approved in October, each affected company is required to contract for five years with at least three independent research firms and make those research reports available to their customers. Payment for independent research from the 10 firms will total $432.5 million, according to the settlement. The brokers must comply with the settlement by August 2004.

Several vendors are competing for a piece of the settlement, including BNY Jaywalk, which launched the web-based Independent Research Meritocracy. Thomson Financial also began developing a solution for broker compliance that incorporates content and services from Thomson One Analytics.

However, other initiatives are encou-ntering more difficulty. One was London-based business information and analysis company Datamonitor’s purchase of Researchsummary, a major proponent of RIXML. is a consortium of buy-side firms, sell-side firms and vendors that have united to define an open standard for categorising, tagging and distributing global investment research.

The RIXML standard would provide the ability to tag any piece of research content, in any form or medium with enough detail for end users to be able to quickly search, sort and filter aggregated research.

Unfortunately, Researchsummary entered liquidation in April, and some observers saw the deal as proof that its model -- the distribution of research in RIXML -- does not have sufficient support among buy-side research consumers and sell-side providers. While usage of RIXML is increasing, with firms like Wachovia Securities claiming clients for RIXML-tagged research, a critical mass has yet to be reached. UBS this year went live with a new research platform to distribute equity research internally using RIXML, and the bank claimed it was also distributing RIXML-tagged research to seven external clients. But both the sell and buy sides still seem put off by the lack of adoption by their counterparts as well as by the investment requirements in the current climate.

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