Recommendations of the Investor Advisory Committee Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors

Recommendations of the Investor Advisory Committee Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors (Adopted July 25, 2013)

Preliminary Observations:

The Securities and Exchange Commission (“SEC”) houses and stewards an enormous repository of information that is invaluable to US businesses, investors, the financial sector and capital markets. With approximately 10,000 public companies and thousands of regulated entities (and 11,000 registered investment advisors, 4061 of which advise “private” funds and approximately 8000 mutual funds), massive amounts of data are regularly submitted to the SEC. Since the vast majority of this information is not currently machine readable, it is difficult to retrieve, analyze and compare. These actions must, therefore, be done manually on a filing-by- filing basis.

Modern technology provides the SEC with the opportunity to unlock far greater value from the information that it collects and stores. Through the consistent application of data tagging formats like XML and XBRL, information filed with the Commission can become fully machine-readable and more easily accessible. Tagged data can, for example, be automatically downloaded into a spread sheet, where it can be sorted and analyzed.

Data tagging will enable investors, regulators, and other capital market participants to retrieve information in a cost effective and highly usable fashion. It will facilitate the SEC’s ability to monitor securities markets and assess the costs and benefits of regulatory practices. Tagging can also facilitate investor participation in the governance process. As the SEC’s Proxy Plumbing Release stated: “If issuers provided reportable items in interactive data format, shareholders may be able to more easily obtain specific information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive data format.”

Data tagging is consistent with recent initiatives within Congress and the Executive Branch. The Administration has issued an Executive Order and implementing memorandum designed to promote open data by making machine readable information “the new default for government information”. Data tagging is also consistent with a policy of smart disclosure, an initiative underway within the Office of Science and Technology Policy and the Office of Smart Disclosure in the US Department of the Treasury.

Tagging has also drawn increased attention in Congress. Dodd-Frank for the first time required the SEC to tag specific information.8 Other legislative proposals have sought to expand the use of data tagging.

Finally, it is important to note that tagging is a global phenomenon. The British require all corporate tax returns to be tagged and filed online. Israeli companies must submit tagged filings to the country’s securities commission. Japan in 2008 began requiring listed companies to file XBRL-based financial statements with the Financial Services Agency. In June 2013, the European Parliament approved a proposal that would assign to the European Securities and Markets Authority the task of developing a single electronic format for financial statements filed with European exchanges. In developing this format, the Authority was specifically instructed to give “due reference to current and future technological options, such as eXtensible Business Reporting Language”.

IAC Recommendations:

Recommendation 1

That the Securities and Exchange Commission (“SEC”) adopt a “Culture of Smart Disclosure” that promotes the collection, standardization, and retrieval of data filed with the SEC using machine-readable data tagging formats. To implement this Culture of Smart Disclosure, the Commission should consider:

• Issuing a public statement acknowledging the approach;

• Requiring each operating division within the SEC to integrate data tagging into all future rulemaking and rule revision efforts that involve the collection of data by the SEC; and

• Providing adequate resources to implement this Culture, particularly through an increase in the resources of the SEC’s Office of Interactive Data….


Continue reading the full recommendations on the SEC site.

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