SEC Jumps Into 21st Century With New IDEA
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The U.S. Securities and Exchange Commission today unveiled a sweeping new architecture for its repository of financial disclosures, promising that the new system will give investors far greater insight into the filings of mutual funds and public companies.
Called IDEA, short for Interactive Data Electronic Applications, the new database will gradually replace EDGAR, the agency's current filing-retrieval system.
"EDGAR dates back to the era of mainframe computing, it's time for the SEC to take the next step," SEC Commissioner Christopher Cox told reporters at a press conference Tuesday morning. The use of interactive data aims to enable complex comparisons among multiple companies or funds that are all but impossible under EDGAR, which Cox admitted was "rather cumbersome."
The ambitious plans for the new database, a product of the SEC's 21st Century Disclosure Initiative, reflect a mounting urgency among government agencies to update their legacy systems to keep pace with the explosion of intuitive, user-friendly services that pervade the consumer Web.
The goal is to phase out the way that information is available on the SEC's Web site today -- that is, in the government forms that companies and funds must fill out -- with a more agile and intuitive presentation for investors and researchers.
The IDEA database will be based on the XML-based XRBL format, short for Extensible Business Reporting Language. The XRBL filings will contain data tags to make the information detectable by search engines such as Google, and formatted in such a way that it can be easily exported for the types of calculations that investors might want to perform when comparing the operating of two mutual funds, for instance.
XRBL features natural-language support for more than 40 languages, so investors in other countries will be able to access automatically translated versions of the SEC filings.
The goal is to make the process of researching investments as simple as comparison shopping for a digital camera, Cox said. Even in a field as complicated as real estate, new technologies have enabled Web sites to provide consumers with easily searchable access to the multiple listing database that realtors use.
The type of cross-company comparison that is all but impossible for the individual investor using EDGAR will be a matter of setting parameters through drop-down menus with IDEA, Cox said. An "Export to Excel" button will appear on the site to sync the data to a spreadsheet.
At the same time it will push much more sophisticated data into the hands of individual investors, IDEA will also facilitate a more complex analysis among the popular consumer-oriented financial-services sites.
"[Sites like] Yahoo Finance, Google, Morningstar will be able to significantly enhance what they already provide investors with for free," Cox said.
But it's not just consumers that stand to benefit, Cox said. Once the initial transition is made to the new reporting system, the burden of preparing regulatory filings will be much lighter.
"It's a little like changing operating systems. Nobody likes to do it, but you upgrade your operating system because it makes you more efficient," Cox said. "Once you've done it you can never imagine going back."
The SEC is currently in the middle of a rulemaking process that would require companies to convert their filings to the XRBL-based format. Depending on the size of the company, that transition would cost an average of a few tens of thousands of dollars in the first year, Cox said.
The United States is not the first country to migrate to an interactive-data format for their financial filings. China, many European nations and, most recently, Japan have made the conversion. Cox predicted that all the major markets will have made the switch in the next few years.
Of course, the SEC's database transition will not be instantaneous. EDGAR will continue to exist as an archive accessible to the public "indefinitely," and IDEA will expand as more companies convert their reporting processes.
"They're going to operate alongside each other for an intermediate period of time," Cox said. The SEC expects IDEA to be fully operational within three years, and "mature" in five years.
"Mainframe era Edgar is being strained, and we need to have a bold new approach," Cox said. "EDGAR helped us get here -- it was a pioneering concept in the 1980s." Then, as if laying an old friend to rest, he added, "We will never forget him."