The SEC and XBRL - A Match Made in Heaven
I’m not sure if you caught this, but the SEC came out with a stunning announcement yesterday: they are going to make the EDGAR database “interactive.”
Washington, D.C., Sept. 25, 2006 — U.S. Securities and Exchange Commission Chairman Christopher Cox announced today that the SEC has awarded three separate contracts totaling $54 million to transform the agency’s 1980s-vintage public company disclosure system from a form-based electronic filing cabinet to a dynamic real-time search tool with interactive capabilities.
The major investment in an “interactive data” system signals the agency’s commitment to move away from the model of its current EDGAR database. It also presages widespread adoption of interactive data filing by companies that report their financial information to the SEC — a development that until now has only been a voluntary pilot program.
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To date the SEC has not required companies to file their information in interactive format, largely because the XBRL labels haven’t all been completed, and because the SEC’s own database — nicknamed EDGAR — can’t yet utilize the extra capabilities of XBRL. The three contracts announced today will close that gap, paving the way for universal XBRL filings by companies.
So what’s the big excitement? What’s all the hoo hah about? Well, for those of you who have spent years wading among documents in the EDGAR database, you know it to be a royal pain in the a**. Investors with ample resources have sought to tackle this problem in one of several ways: (1) employ young, comparatively cheap analysts to rip through these documents for salient bits of information; (2) either develop or license high-end data mining programs to linguistically analyze filings as they come in, with speed of extraction and delivery a function of how much money someone wants to spend on the application; or (3) subscribe to a service like CapitalIQ which uses an army of offshore resources to extract relevant information and place it in a homogenous, easy-to-use format. These methods worked pretty well but are either, well, pretty slow or quite costly. But there is no question there is value in the documents - there always has been and likely always will be.
So what of this announcement? Well, what the SEC is saying is that they are going to spend $54 million large to re-do their archive and the method by which firms file documents with the agency. Specifically, they money will be spent on three key initiatives:
- Modernize and Maintain the EDGAR Database to Use Interactive Data — $48 million
- Complete XBRL Code Writing for U.S. GAAP Financial Statements - $5.5 million
- Interactive Data Tools for Investors - $500,000
An extract from detail in the release expands on its implications:
The new system will be completely interactive. Using interactive data technologies such as XBRL (Extensible Business Reporting Language) and XML (Extensible Markup Language), it will allow investors and analysts to search not only forms, but the information within them. It will permit information to be immediately downloaded into applications software. And it will enable anyone to get real-time, streaming data using RSS feeds, ATOM, and other automated Web tools, which could automatically search for newly filed SEC disclosures and deliver the desired data directly to one’s desktop.
It’s pretty sad that boring techie prose like this can get me revved up, but it does! I mean come on, how cool is this? By using XBRL, the agency will be tagging key items within these important documents, making them easily searchable and making them available via an RSS feed. So, I can get pinged when there is a new filing about a company I care about, I can rapidly pull up the file, download key pieces and swiftly search it based upon keywords and tags related to my areas of interest. Love it.
Now, this doesn’t sound particularly revolutionary to someone immersed in the world of the web (with the related expectations that come along with such knowledge of what’s possible), but coming from the SEC news like this is absolutely earth-shattering. What? This project saves companies on the cost of filing and makes the information infinitely more useful and accessible for investors? I’ve never heard of such a thing from one of our government agencies. Thanks, Chris.
Mr. Cox foreshadowed this announcement in a speech he gave in May at the American Enterprise Institute:
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Today at AEI we’re talking about another national movement that was started in the private sector — and that the government will eventually sign on to. It’s the movement to electronic exchange of financial information that will be standardized across many technologies — including personal financial software, corporate financial preparation software, and the Internet.
To make it sound high tech, which it is, it sometimes goes by the name of “XBRL.” In plain English, I call it “interactive data.” Either way, what we’re talking is very straight forward. For users of financial information, we want better access; more accurate and reliable information; and significant new capabilities.
These are really quite simple concepts. But interactive data — which is truly a revolutionizing and exciting topic — is often bogged down by its own terminology. XBRL isn’t an abbreviation that easily trips off the tongue. Not only does calling something “XBRL” make people think you’re talking about the Sci-Fi channel, but then there are “taxonomies.” I learned during 17 years in Congress that people are natively suspicious of anything that starts with the word tax.
It seems to me that we might be approaching this from the wrong end. Instead of talking about all the gizmos that will make markets work better and give investors better tools than they have today, we ought to be starting with the reasons that interactive data will make the lives of investors, companies, and even regulators better. Watchmakers, after all, do not sell their products by talking about tachometers and rotors. They tell you that their watches keep perfect time. You don’t have to know anything about movements to be able to tell time — and to know that it’s always better if your watch hasn’t stopped before an important appointment. With interactive data, the parts and internal movements can be daunting, but the result is to make investing easier and better for the individual and for the market as a whole.
Interactive data is a marriage made in heaven for investing and high tech.
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Commissioner Cox, your talk almost brought tears to my eyes. Someone in government who actually gets it! I don’t know what else to say except that its great to see that the SEC is getting on the clue bus, and not a moment too soon. This change was sorely needed, and it should have a substantial impact on how investors access this data. Extracting value should become much easier and much less expensive than it is today. And this can only be a good thing.
