Dan Cwenar is the chief operating officer for Access Data Corporation of Pittsburgh, a financial services industry software and consulting company whose clients include Invesco of Denver and Charles Schwab of San Francisco. Cwenar will moderate a panel of industry executives who will discuss XML and its use in the financial services industy this week at the Technology Forum sponsored by the National Investment Company Service Association of Boston. Cwenar recently discussed XML with Mutual Fund Market News reporter, Andrew Brent. An edited account of their conversation follows.

MFMN: What is XML?

Cwenar: XML stands for extensible markup language and is a language specification that allows you to very [expressively] describe content. Think of HTML as a very early way of describing content: I want my web page to look a certain way.' Where XML takes it to the next level is that you can not only describe what you want it to look like, you can describe what the content means. Rather than simply saying I want this string of text to look bold, I can literally say that this particular block of text happens to be a number for a security. It's almost a text-oriented database that contains information about the data itself, as well as how you might want to describe what it looks like.

MFMN: How are financial institutions, and more specifically fund companies, using XML?

Cwenar: There are three converging events that I think are going to impact fund companies. There are what the fund companies are doing themselves; there are what the vendors are providing, people who develop tools and data services that companies may use; and then there are the industry standards bodies that are madly working away.

If you think about it from the vendor perspective, a lot of vendors have pretty aggressively grabbed on to XML as a way of providing content or basically building their product architectures of the future ... You have independent companies like SunGard, EDGAR and NSCC and DTCC all coming out and saying, We're squarely behind this and our efforts going forward will involve a lot of XML activity.'

If you move to what's going on in the industry, there is an amazing amount of effort with regard to standards. And the thing that I think that really makes XML powerful beyond just its core language capabilities is the fact that you and I can agree on a common vocabulary, so that when I ship you an XML file you'll be able to decipher it, and you can pass it on to someone else and have them decipher it, and we all agree on what it means. For example, I might ship you a trade file or an expression of interest if I'm going to a brokerage depository, and across the industry everyone would be able to interpret it in the same way. You can get buried in all of the specification efforts that are going on. For example, something that's very important to the investment industry, especially to the fund companies, is the whole T+1/STP effort and there's something called ISO [International Organization for Standardization] 15022 XML, and what that standard proposes is that we have a common way of sharing transaction data ... There are just a ton of standards that are, as we speak, evolving to come out with a common vocabulary across the industry ... And more people agreeing on the standard XML will make it vastly more potent.

All of that drives to what the fund companies are doing, and there are myriad examples of isolated applications: somebody touting that [they] share [their] content in XML, or that [they're] using XML to deliver content to [their] web, or that maybe [they're] using XML as a development standard internally. There are lots of companies that are using it to share data with their internal applications. There's a ton of talk, but the bulk of the effort today has been isolated examples. I think that to really move beyond where XML is being used today, you really have to have the adoption of the industry standards, so that, for example, the fund complexes could submit their 10Q filings to EDGAR via an XML standard format. There is an amazing amount of interest, an amazing amount of talk, a lot of developers are learning XML now. I think you're going to see the real value coming in the next 12 to 18 months. As more and more vendors are providing tools and more of the industry is producing standards, you're going to see fund companies jumping on it big time.

One thing to think about that is very important is something that's called multi-modal display. [Let's say] you're somebody who wants to share some information, except you're not quite sure on what kind of a device people are going to read your information. It could be on a browser on their desktop, it could be on a WAP [wireless application protocol] enabled cell phone, or it could be on their PDA [personal digital assistant] that they're carrying. The power of XML is that if I describe the content once, through style sheets I can then deliver it to almost any number of devices I want given the display characters. And that's another really important use for financial services companies, given that they share information like prospectuses, financial results, buying recommendations, and research information. All of that will be facilitated with XML.

MFMN: Does XML only enhance data going from one place to another or does it also have capabilities that might make complex transactions more efficient?

Cwenar: It's both. The real promise, and I think that's where you're going to see the groundswell of activity, is exactly that point of making transactions more efficient. The effort that ISO is doing with 15022 XML - that's an industry standard that would allow me literally to electronically transact data and ship it to my custodian, to my fund accountant, to the broker, to the clearing corporations and minimize human intervention. That is a huge promise and why it's important to get the industry standards done.

MFMN: Can fund companies implement XML with their average in-house IT departments or is it something that will need to be outsourced?

Cwenar: Probably a little of both. XML is not a difficult language or concept to learn. I think that you'll see some of the fund companies investing in training. I think that's where the value of the consultant is going to come in - how you move outside the realm of using XML in a departmental setting or an intra-company setting into an inter-company setting for trade settlements, the filings of required documents, and the sharing of information with investors.

MFMN: What are the obstacles to introducing XML?

Cwenar: The biggest obstacle to having widespread industry adoption is the completion of the standards. Sometimes the standards bodies, especially at an ISO level are like governmental bodies, in some respects, and it can take a while to get some of the standards through.

I think the second thing is just confusion. There are a million acronyms out there today and part of that is just getting through the educational process. What's the difference between ML and FPML and XBRL and do I care?' Part of it is just figuring out what's important.

MFMN: You said you think XML will become heavily used in the next 12 to 18 months. Is this something that is likely to be around for a while, or is it the kind of system that might be replaced two years from now?

Cwenar: I don't think XML will be replaced in two years. Certainly the standards will continue to evolve. If you look at past history of standards that have worked in the financial services industry, they evolve more than they do just disappear. They evolve, they become more robust and more descriptive. I think that you'll see over time that the real power of this is that everyone understands the common language. Think of the adoption of the web. People put up very rudimentary websites, which then forced HTML to get more sophisticated, and then people started doing very sophisticated things with it. It became an industry de facto standard, and I think you'll see the same thing with XML.

The thing you have to be careful of is starting to adopt vendor specific standards. If a vendor will only operate in a certain vocabulary and you develop your systems to share information with it, you may not be able to share information that is industry wide. A little bit of the catch 22 today is that you want to evolve with your understanding of XML, but at the same time you have to be careful not to start adopting very specific vendor solutions as opposed to industry solutions.

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