One big ‘company file’ to
replace hundreds of SEC forms
Report on the SEC’s 21st century disclosure
initiative expected today
The SEC is
expected today to unveil a high-level blueprint for a new financial
disclosure system to replace outmoded 10Ks, 10Qs and other filings. Under
its ‘21st century disclosure’ initiative, the SEC set out in June to
‘rethink’ the way it collects, analyzes and disseminates information
produced by public companies, mutual funds, brokers and others. The agency
plans to move away from lengthy disclosure documents toward an interactive
‘company file’ for each reporting entity.
Bill Lutz, chair of the SEC initiative, gave NIRI’s New York chapter a
preview of his new report at a Thursday evening meeting. An emeritus
professor of English at Rutgers University and securities lawyer best known
for authoring the SEC’s Plain English Handbook in the 1990s, Lutz began by
suggesting that the flaws in the current system of disclosure may have
contributed to the world-wide financial crisis.
‘Improved transparency would have surely blunted some of the pain we’ve been
suffering,’ Lutz said. Sometimes the problem has been ‘simply too much
data,’ with ‘long and wordy’ legal and accounting jargon. ‘Investors are
getting buried in an avalanche and they need to dig it out.’ In Q&A later,
Lutz added, ‘Enron would never have happened if they had filed online with
thousands of people looking at their reports.’
Lutz described how, under the new plan, a company would do one big filing
then update it with new information as required. It wouldn’t have to
repeatedly file ‘evergreen’ information, only submit new data. It would be
easy for the public to track new updates and compare information among
Lutz’s plan builds upon the SEC’s XBRL plans and interactive data electronic
applications (IDEA), which will replace EDGAR (he revealed that outgoing SEC
chairman Chris Cox, who has led the technology push, will be featured in a
cover story in the March issue of Wired magazine talking about ‘cloud
NIRI-NY invited two investment community representatives to join in the
discussion moderated by Michelle Savage, VP of communication for XBRL US.
Bill Mann, senior investment analyst for Motley Fool, spoke for retail
investors, while Jason Swiatek, a portfolio manager at Jennison Associates,
gave the institutional viewpoint.
Both experts greeted Lutz’s plan with polite enthusiasm but suggested that
investors, who rely mostly on companies’ own websites and financial data
intermediaries, or ‘infomediaries’, may be slow to switch to the SEC’s data
storehouse. Mann described a recent survey that found 68 percent of retail
investors don’t read company filings because they’re too complex and they
don’t trust the information. Motley Fool directs investors to company
websites where they can get all the information in one place, unfiltered by
the SEC. ‘It’s going to take time for the average individual investor to
figure [the new filing system] out. They’re distrustful. But I’m very
hopeful,’ Mann said.
One audience member warned of ‘unintended consequences’ as algorithmic
traders use interactive data in their program trading, ‘exacerbating
volatility and disadvantaging retail investors.’ Lutz responded that the
only ones who will be disadvantaged will be infomediary back office workers
currently ‘slicing and dicing’ information.
Despite the SEC’s change in leadership, Lutz predicted the new disclosure
system will be adopted in three to five years. His report is now with the
commissioners and his staff has prepared a briefing book for the SEC’s new
chairman, Mary Schapiro. Lutz said Schapiro is expected to be receptive
considering she implemented ‘just such a system’ as head of the Financial
Industry Regulatory Authority (FINRA).