Report of the 21st Century

The staff at the Commission has issued the Report of the 21st Century Disclosure Initiative.   The Report does not recommend any change in the content of the current system of periodic reports.  Rather, it is the opening salvo in a comprehensive technological update of the SEC's system of filings.  Rather than rely on static documents, the Report recommends a more state of the art, interactive system for filing data.  As the accompanying release notes:

• As disclosure documents have continued to grow longer, reflecting more complex business arrangements, the plain-text format used in EDGAR has become less effective. Disclosure information in an interactive data format could be automatically processed by software and seamlessly fed into investors' analyses and comparisons. Rather than being buried within a lengthy, static plain-text document, each piece of information would be individually searchable. Disclosure information would become more accessible and easier to use, enhancing the transparency of the disclosure system.

It will require fundamental changes at the company level.  As the Report notes:  "Designing and implementing a disclosure system using interactive data poses a number of challenges, including the maintenance of current audit, content, timing, liability, and delivery requirements that are embodied in our regulations and laws."  

The Report also recommended the next step:  an advisory committee consisting of "investors, filers, information intermediaries, and other market representatives "to make recommendations on creating a filing system based upon interactive data.

EDGAR is now 15 years old.  The system was revolutionary in its day, making filings universally accessible at no cost over the SEC website.  The system, however, requires modernization.  Reliance on interactive data that can be manipulated and compared will be a useful change.  In the short term, interactive data will probably be most valuable to market professionals such as analysts.  Over time, ordinary investors will benefit, less from direct analysis and more from software programs likely to come onto the market that can monitor changes in the financial condition of public companies and provide comparisons, perhaps in an analysis of the risk assumed by these companies.