EDGAR to Usher in New Era of XML
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The Securities and Exchange Commission (SEC) stands on the verge of ushering in a new era of electronic financial reporting, but less than half of all filers of corporate documentation this past season have demonstrated they are willing to accept to the new standard.
A week from now, on Friday, April 20, every publicly traded company will need to transmit documents to the SEC's Electronic Data Gathering, Analysis, and Retrieval system -- better known to the world as EDGAR -- using Extensible Forms Description Language (XFDL) rather than Standard Generalized Markup Language (SGML). As opposed to HMTL or plain old ASCii files, XFDL is an open protocol for securely sending and receiving legally-binding XML documents.
The EDGAR modernization program, which began three years ago, was designed to simplify the process of filing the millions of documents that come into the SEC from individuals, corporations, law firms and their financial printers. (Prior to EDGAR, the government agency each day received documents by the truckload.) Under the previous SGML system built for the SEC by TRW Inc., all regulatory filings were processed using a customized, handwritten solution that executed routines to parse all of the data -- e.g. corporate name, state of incorporation, CUSIP, etc.
Using the EDGARLink software (also designed by TRW based on PureEdge Internet forms), the XFDL system is supposed to simplify the process for filers by eliminating header tags. The new standard eventually could even encapsulate presentation, computational logic and business semantics, such as those defined by CBL, cXML, or BizTalk, in a single XML document. But that's not part of the SEC's latest rollout.
Despite the push for modernization, though, only about 35 to 40 percent of all filings during this past season were done so using the new standard, said Rick Heroux, EDGAR program manager at the SEC in Washington.
In fact, the SGML-to-XFDL changeover was supposed to kick into effect last November. With corporate officers and lawyers more concerned about the general deadlines for filing 10-K (annual) and 10-Q (quarterly) documents, the SEC was forced to postpone the implementation until now.
So who is ready? Merrill Corp., one of the largest financial printers, contends it submitted almost 25 percent of all HTML documents filed with the SEC -- all of which utilized the new XFDL transmission standard.
But the government doesn't agree with those numbers. Of the 40 percent that filed using XFDL standards, most were individuals (smaller corporations, lawyers, etc) while financial printers showed the greatest resistance, according to the SEC official.
"We saw a specific slowdown by the financial printers. They were slow in coming over," Heroux said.
And the numbers from Merrill's competitors certainly validate the industry's sluggish uptake. During the March 10-K season, which peaked on April 2, about 40 to 60 percent of all filings by R.R. Donnelley Financial took advantage of the modernization. R.R. Donnelley officials acknowledge that learning curves are steep for both their clients and employees. But as Corporate America trudges forward toward another earnings season, the printing house now stands 100-percent ready to tackle a modernized EDGAR.
"I think, because it's not an option, they've found ways to do this. It's just a matter of upgrading the (proprietary software) and retraining employees with new skills," said Stacey Schinder, product manager for EDGAR at R.R. Donnelley.
Part of the problem has been the cumbersome new transmission methods. The SEC contends the system now validates the data as it comes in -- for example, if someone tried to input a letter in a number field. But the file sizes are much larger and transmission takes much longer, especially depending on bandwidth.
Another drawback is the EDGARLink transmission software doesn't allow the user to edit, view or print the entire transmission, according to Michael Taylor, training and support manager at Document Technologies (better known in financial reporting circles as d-Tech). d-Tech is the manufacturer of EGDAR Ease, a package that competes with EDGARLink. (To its credit, the SEC left the XFDL platform open for other developers support the architecture so as not to stifle competition.)
Whatever the reason (or excuse) for not using XML-documents in the XFDL format, none of that really matters now. Heroux said, barring any catastrophic event, April 20 is now the drop-dead deadline.