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VANCOUVER - A new type of data processing that slices and dices financial numbers in split seconds is headed for Wall Street. It's a big opportunity for the bright and a death knell for the complacent.
This machine-readable computer language - called XBRL - standardises financial data from
around the world and enables instant analysis. That should sound groovy to number-crunchers, but few have heard about it - yet.
"It's something like the introduction of Excel or the internet, in that it makes information more accessible, faster and more accurate," said Dane Mott, a Bear Stearns accounting analyst who has been promoting XBRL on Wall Street. "Analysts aren't very educated about this."
They'd better watch out. XBRL, which stands for extensible business reporting language, is gaining momentum. US regulators are likely to require companies to file their final 2008 results in XBRL format. China, Japan and others are already mandate it, or are poised to do so.
"The technology has hit the 'wow factor' stage," said Diane Mueller, the chairwoman of the 16th annual XBRL International Conference, in Vancouver.
Once companies start translating news releases and exchange filings into XBRL, that wealth of information becomes instantly available. The next step is to expand XBRL into industry metrics, such as sales per square foot for retailers, or teach it to read numbers in text, such as profit warnings.
Whoever gets a handle on this stuff ahead of the crowd will have a field day.
"The analysts are going to have to up their game," said Dan Roberts, a Grant Thornton director who served as the US chairman of XBRL. "If you're selling whale oil to light your home, electricity has arrived!"
XBRL-savvy analysts could analyse bucket-loads of company data, freeing them up to "kick the tires" for original research and making them sound smarter on conference calls with company chief financial officers and fund clients.
Plus, traders who retool their "black box" computerised trading programmes will have a big speed advantage over those who say: "XBRL what?"
Wall Street analysts these days know that pushing out plain research notes on company results or tweaking profit estimates doesn't cut it anymore.
The research chief of HSBC Holdings Plc, Graham Copley, gave his London analysts a verbal lashing last year, saying they produced mostly "worthless flashnotes."
As a result, analysts have tried to move up the value chain, inventing and analysing new industry gauges, and interrogating suppliers and middlemen.
Wall Street also is clamping down on distribution of its research to give it an air of exclusivity. One example is a lawsuit filed by Merrill Lynch & Co Inc, Lehman Brothers Holdings Inc and Morgan Stanley against theflyonthewall.com, an online outfit that collects research written for bank clients and makes it available within a minute for $25 a month.
The overarching driver behind XBRL is that research became a cost centre after the dot-com bubble burst in 2000. The bust exposed analysts who promoted dog IPOs to gain lucrative investment banking business and was followed by new regulations that separated research from banking.
XBRL will intensify the need for research exclusivity as it eliminates much of an analyst's grunt work: the time-consuming and error-prone process of pulling data from multiple sources.
"The biggest benefit is that it's going to take a lot of labour out of the process of data gathering," said Jack Roehrig, a 30-year Merrill Lynch veteran who's now a Jordan & Jordan consultant. "The second benefit is time to market. It frees them up to do research rather than regurgitating numbers."
For now, the job is spreading the XBRL word and developing ways of delivering the data to investors and analysts.
"The key factor on Wall Street is timeliness. If you push XBRL at them; they can't process it," said Christopher Whalen, director of research shop Institutional Risk Analytics.
"There is enormous utility of XBRL for data gathering and accuracy," Whalen said, adding that he uses XBRL bank data from the Federal Deposit Insurance Corp but then shifts it into his models using the "ancient" Cobol format. "But the users are not ready to change the way they consume the data."
And then there is preparation for the age of XBRL - or lack thereof.
A recent poll by the Chartered Financial Analyst Institute of 864 investment professionals showed 43 per cent had no clue about XBRL. Company CFOs are equally ignorant. A Grant Thornton survey of 221 CFOs showed 47 per cent had not heard about XBRL.
"Three-quarters were private company CFOs, who don't see XBRL as quite the freight train like public company CFOs do," Roberts said. It was an unambitious lot, anyway: A similar percentage did not want to become CEO - ever.
"The message is spreading," said Christopher Cox, the US Securities and Exchange Commission chairman, at the Vancouver conference. "Probably the best sign that XBRL has arrived is that it has its own dummies book, 'XBRL for dummies."'
- REUTERS
