Making XML Work in Business
by Alan Kotok
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Pages: 1, 2, 3
Do the Math
Tony Coates of Reuters described how the financial services industry benefits from FpML. The industry had already developed standard contracts for many of its products, what it calls vanilla contracts. With FpML, parties to trades can automate the parts of the contracts with which they had agreement, thus reserving human intervention for negotiating areas of disagreement. According to Coates, using FpML will help reduce the current three to five-day preparation time for derivatives down to one day by 2005, the target for the industry. And in an industry where timing plays such a critical role, this increase in turnaround time will payoff immediately for all participants.
One of the companies implementing FpML is SwapsWire, a network of 23 investment banks for the electronic trading and confirmation of financial derivatives. Guy Gurden of SwapsWire said the first product support by the company is interest rate swaps (thus its name), although it plans to support other kinds of derivatives in the future. Swaps are an agreement to exchange future cash flows. For example, one party makes payments based on fixed rates, while another party makes payments based on floating rates. These agreements can run for as long as 30 years, although three to five years is the normal period.
After the agreements are drawn up, they need to be confirmed. Today for confirmation, the trading partners exchange documents by fax. Either they can take one document and fax it back and forth, or each party draws up a document that gets exchanged and discussed. Even the simplest document can run several pages, so the process is time consuming and error prone.
Gurden laid out a few metrics to show the potential impact of FpML. Today, the average weekly derivative volume of a typical financial institution is 380 trades. Each support staff person can handle about 9 trades per week, which means the average institution needs some 42 staff people to process the trades. Each support staff person has an average loaded salary of $87,000. FpML can increase the throughput for each of the staff people and reduce the negotiation load on each of the analysts. As they say on Wall Street (and elsewhere), do the math.
But SwapsWire will likely have its greatest impact on the improvement of the business processes used in swaps. Today, confirmation takes place after the parties agree to contractual terms. The traders match the provisions of each document, and once they are all in agreement, then the contract is confirmed. By bringing the traders on the SwapsWire network, the parties can agree to the terms of the contract during the trading process, thus cutting out much of the time needed for confirmation.
Reporting Results
Another session in the track featured the Extensible Business Reporting Language (XBRL). Zach Coffin of KPMG described how XBRL could well become the catalyst for an entirely new way of reporting business performance. XBRL started as an accounting vocabulary, but now encompasses most of the ways a company reports its performance or activities to investors, government agencies, or the public.
As an example of the need for XBRL, Coffin described the potential benefit for one of KPMG’s banking clients. That bank, according to Coffin, is one of the best in the world at processing loan applications, but it still takes nearly two days on average to turn around each application. An analysis of the bank’s processes showed its staff spent 90 percent of this time on data discovery and paper-shuffling mechanics, and only 10 percent on real decision making. Better management of the information from credit customers, much of it tied to business performance, could reduce time spent on loan applications and increase the throughput of loans significantly.
Coffin said XBRL designed its vocabulary using the traditional supply chain as a model, with each piece of information like a bar-coded and uniquely identified inventory item. Using this model, XBRL aims to better manage the flow of information through the business reporting supply chain, from internal business operations, to management reporting, to external public reporting, and finally to investment and lending analysis. Examples of current uses for XBRL include accounting, financial reports, loans, mutual funds, and economic indicators. The XBRL organization is working on regulatory filings, tax filings, contractor ratings, and performance-related press releases.
Extending the EDI Experience
Joe Smolic, an independent consultant, described how the book publishing industry plans to use XML to extend its previous work with electronic data interchange (EDI) beyond the few large companies to the much larger universe of smaller companies who cannot afford the high cost of EDI.
Smolic said book publishers found that to buy the paper and services needed to manufacture books, hard copy purchase orders cost from $65 to $85 each, while electronic purchase orders using EDI cost $1 to $4 each. He added that electronic transactions will reduce errors in the complex transactions with manufacturers and paper suppliers, as well as reduce the time spent on paperwork.
Less tangible, but still meaningful benefits include better management of the production process from more accurate and timely information on the status of production jobs, paper usage, ship notices, and invoices tied to the individual print jobs. Smolic added that the use of XML can also encourage new business opportunities, such as opening up new channels to the end-consumer, including direct sales from the publisher, on-demand book printing (no more out-of-print books), personalized book production, and selling books incrementally, chapter by chapter.
While these benefits to businesses, including small ones, can be significant, for the most part many of the systems discussed at XML 2001 are still being planned or projected. Several conference sessions and tutorials addressed Electronic Business XML (ebXML) and web services as infrastructures that can deliver these benefits to smaller businesses. One of ebXML’s main goals is to make e-business possible for smaller businesses, and both Coates and Smolic mentioned ebXML as a framework for their respective industry vocabularies.
The challenge for XML is to make e-business real for smaller businesses. Not only can smaller companies and organizations benefit, but XML vendors can start showing the value that they have promised since the beginning.
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Comment on this Article
| Titles Only | Titles Only | Newest First |
- SwapsWire Launches Global Swaps Network
2002-11-15 11:21:38 Guy Gurden [Reply]
Alan,
You may be interested in hearing that SwapsWire, the service I presented on at the XML 2001 conference which you covered in this article went live a week or so ago. For further details see
http://www.swapswire.com/press/14_11_02.asp
Testament to the fact that XML (and FpML in particular) does work in business!
Regards
Guy Gurden
Product Development Manager
SwapsWire
- Marketing Implications?
2002-03-12 21:30:19 Darren Wong [Reply]
It is a very interesting article you have here.
What do you think of the XML in the area of Marketing?
- Managing XML
2002-01-09 11:23:49 Lori McFarland [Reply]
This is a very interesting article, especially because it relates directly to the technology my company develops. I work with a company called Ipedo. Our technology includes the Ipedo XML Database, which can help companies INTEGRATE, MANAGE and DELIVER customized views this information to applications and users. For example, let’s say Freightliner captures the components of its vehicles and stores this information in the Ipedo XML Database. The information would be stored natively in its hierarchical form ready to be accessed via new applications that might be built out for the buyers and internal staff. One application they might build could offer customized view of this information that might include pricing or proprietary information and the next application could show a separate view of the information that is captured. Freightliner may offer the ability to specific users to change specific information on the components, if that is done they can track the changes and update their relational database they use if they feel it necessary to retain all the information centrally at the end of the day. Ipedo streamlines the process of creating customized views of information from many disparate sources.
If you are interested in learning more, please visit our website at www.ipedo.com, contact me at Lori@ipedo.com or call me direct at (650) 306-4018. I would be happy to outline what we are doing with the companies we are working with in the Financial, Insurance, Telecommunications, Pharmaceutical/Biotech and Manufacturing industries.
- Managing XML
2002-01-11 14:48:03 Alan Kotok [Reply]
Lori:
Thanks for the comment and the alert to your company's work with XML. I will check it out. Best regards.
Alan Kotok
Technology News & Literature
alankotok@cs.com
http://www.technewslit.com
- Managing XML
- XML
2002-01-06 03:27:18 Yves Alexander [Reply]
Has XML really been a success?
Any flaws registered?
Please enlightened on the above points
- XML
2002-01-11 14:46:34 Alan Kotok [Reply]
Yves:
Thanks for your comments.
I believe the article discusses some very real cases where XML has provided solid benefits (Freightliner, SwapsWire) and others where the users expect significant benefits.
As far as flaws, there are plenty of nay-sayers out there who will be happy to give you plenty of problems. But for starters, XML is verbose and in some respects still a work in progress.
Best regards.
Alan Kotok
Technology News & Literature
alankotok@cs.com
http://www.technewslit.com
- XML
