Speech by SEC Staff:
Remarks at the XBRL International Conference
Director, 21st Century Disclosure Initiative
U.S. Securities and Exchange Commission
Ronald Reagan Center
October 15, 2008
Before I begin, let me give the necessary disclaimer.
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed here are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues on the staff of the Commission.
I am going to speak briefly about the Securities and Exchange Commission's 21st Century Disclosure Initiative that Chairman Christopher Cox launched in June of this year. The Initiative calls for a fundamental rethinking of the way that the SEC collects and provides disclosure data to investors and other users of disclosure.
While this Initiative was getting underway, the Commission rolled out in August its new technology platform, IDEA. IDEA, or Interactive Data Electronic Applications, is a suite of new tools that will enable the Commission to do its job better. IDEA is the platform that will host any new disclosure system.
I think it is safe to say that continuing to rely on EDGAR, which was created over twenty-five years ago, is not the way of the future. EDGAR has served us well and continues to be a very useful tool for getting disclosure information to the Commission and investors. But as the Commission enters its seventy-fifth year, it is probably time to rethink the disclosure system.
I am going to do two things in my remarks. First, I am going to describe how the SEC currently collects disclosure data, and second, I will describe a possible future disclosure system. In other words, I'll answer the questions where are we now and where would we like to be?
Today, companies file information with the Commission on printed forms that have usually been formatted by a financial printer and uploaded into EDGAR. In many cases, the companies take financial data from highly automated and trustworthy internal systems and transcribe that data so that it can satisfy EDGAR's filing requirements. The forms containing the disclosure data are in these formats: MS Word, HTML, and PDF. In other words, the data is contained in static documents. Moreover, it's difficult to search these documents, and what searches you can conduct are limited in scope. And while it is possible to compare data from different documents, it is difficult and challenging to say the least.
Investors seeking comparative information between mutual funds or specific information about the risks associated with investing in a single operating company have to wade through pages and pages in form after form to get the information they're after.
This process, centered on EDGAR, has worked adequately for years, but it's inefficient, at best. We need to find a way to give investors faster access to disclosure data and a way for investors to access higher quality information.
Currently, we are thinking of an approach that will move the SEC away from its current reliance on forms so that disclosure data from filers — investment companies, operating companies, large shareholders, and other related parties — will be entered in a structured format but will not be linked together in a static form. We call this a company file system. The company file would contain certain basic data about the company that doesn't constantly change. So instead of describing the company's business, principal address, and so on, on form after form, companies would input this information just once, and update it only when it changes, using the normal periodic or current filing triggers.
After establishing that file, companies would then input any new and additional data needed to satisfy, for example, their Exchange Act Section 13(a) reports, or their Securities Act Section 8 registration statements. This disclosure system would:
automatically incorporate by reference previously filed data for the immediate reporting obligation,
give the source for and place the date on the new information to keep a record of what was filed, when it was filed, and for what purpose, and
allow previewing of filings before hitting the send button so that lawyers, accountants, auditors, underwriters, certifiers, and others can perform their checks.
All data in the file would be structured according to a defined information architecture and submitted to the Commission in individually-accessible but related pieces. Companies may even submit their filings directly into the system and avoid the cost of financial printers. Or, they could develop software that interfaces with the SEC and electronically uploads disclosure data, thus reducing or eliminating manual transcription errors.
Once the disclosure data is filed in a structured format, investors would be able to access that data immediately and would be able to do targeted searches, sorts, and comparisons. This would help solve the problem of investors missing important disclosure information because it's buried deep in a form that's too long or scattered among different forms. Instead, an investor seeking to understand what growth a company's management is forecasting for the next year will be able to pull up the most recent management discussion with a few key strokes.
Imagine being able to type a few words to learn how exposed your mutual fund is to investment risk in Asia, or how much a company you're thinking about buying stock in relies on high interest, short term loans for operating capital? This will be possible if disclosure rules capture the kind of information investors need, in a format they can use, using a system that provides easy access.
In December of this year, the Initiative team will produce and I will give to Chairman Cox and the other Commissioners our report with a proposal for a new system. We will recommend that the Commissioners give our report to a Federal Advisory Committee that will study our report and recommendations and then produce their specific recommendations for implementing a new disclosure system.
EDGAR was revolutionary when it was introduced, and it has served well and honorably for over twenty-five years. But it is time to move to the next generation of technology for disclosure, technology that will be as revolutionary as EDGAR and serve the needs of investors even better than EDGAR. A company file system with structured data is, I think, that technology.