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Investor Relations Magazine, January 16, 2009 article


Crossbow logoPeople on the street

One big ‘company file’ to replace hundreds of SEC forms

Jan 16, 2009

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 companies.

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 sourcing’).

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).

By Neil Stewart




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