SEC Head Says Interactive Data Drive Gaining Steam

Cox is “pleased” with the project’s progress and with the cross-section of companies taking part. Microsoft, United Technologies (UT), Xerox and XM Satellite Radio are among those sending financial data to the SEC in a new XBRL data-tagging format, informally known as interactive data. It cost UT less than $40,000 to shift to XBRL, and once other registrants learn how the format can make life easier, “you will see a significant jump in the number of firms that are taking advantage of the opportunity,” Cox said.

The pilot lasts at least a year, during which firms will advise the agency on their experiences. That dialogue will give industry and regulators a better understanding of how interactive data can improve the financial reporting process, the SEC said. XBRL makes corporate data -- including the text disclosures in management’s discussion and analysis (MD&A) in a company’s 10-K report -- more accessible and less expensive for reporting companies to produce. The SEC has 800-plus forms, a number XBRL could reduce to 12, Cox said.

Cox gave the Senate Banking Committee a taste of XBRL’s benefits earlier this year (WID April 26 p6), saying it can eliminate errors and connect investors directly to financial data accurately, cheaply and quickly. It makes searching, extracting, compiling, comparing and analyzing figures easier, he said. Cox told AEI the filing format could facilitate real-time reporting via RSS feeds, which have gained in popularity for delivering breaking news and other information updates instantly to Web users.

An interactive data regime is “truly revolutionizing and exciting,” Cox said. True, XBRL’s confusing terminology “makes people think you're talking about something on the Sci-Fi Channel,” he said. But Cox assured his audience the system is “a marriage made in heaven between investing and high-technology,” which historically “kept missing each other.” Technology has changed nearly every aspect of peoples’ lives, from communications to listening to music and playing games, he said. But the “most important thing we do in life -- investing in our savings for our future,” still relies on a system true to Johannes Gutenberg’s 15th century development of movable type, Cox said: “This won’t do anymore.”

Investing, once the province of wealthy men wearing powdered wigs, now is embraced by nearly every working mother, family and retiree in America, Cox said. In 1986, only 19% of citizens owned stocks. Now about 50% do, he said, and people are working and living longer and investing more. Steps to greater investor protection, like interactive data reporting, can help ensure those numbers don’t slip, Cox said. The U.S. needs “something that gives people faster access to better information to make better investing decisions,” he said: “We have 24-hour news [and] 24-hour pizza delivery. Why are we still living by the 10-K and 10- Q?”

With XBRL, an investor or analyst could access return on investment (ROI) of all companies in an industry or compare ROI for one firm against competitors’ data, Cox said. Those interested in investing in oil could compare oil reserves for each company, he said. The XBRL tags “give data points a unique ID,” outfitting each indicator with its own GPS-like “homing device,” Cox said.

The code could remedy “unacceptably high” error rates in SEC filings, Cox told the group. Computers amassing data from agency databases get it right only 72% of time and human double-checking is also error prone, he said. After human extraction, error rates range from 5-20%, Cox said. Edgar Online, which has aggressively adopted XBRL to tag more than 10,000 company statements to date, has achieved a greater than 99% accuracy rate, Cox said. That shift hasn’t come a moment too soon, he said, because research budgets at the 7 largest Wall Street firms have plummeted. Wells Fargo and other investment banks have scrapped their research divisions, Cox said: “[XBRL] would help fill an informational gap that could be making markets less efficient.”

The shift boils down to “leveraging the Internet to make the information supply chain more efficient,” said XBRL International’s founding chmn. and PricewaterhouseCoopers partner Mike Willis. The standard could do for the securities industry what the bar code did for grocers, he said: Before bar codes, the average store had roughly 6,000 units on the shelves. Today, a Safeway averages about 36,000 units, Willis said. Bar codes cut the cost of retail grocery inventory management $17 billion annually while increasing the volume of inventory managed. XBRL could do that for the investment community, he said.

AEI’s Peter Wallison said few regulators have the chance to make lasting, sweeping changes, and in Cox’s case, much of his time goes to “fire fighting” -- answering congressional demands and responding to financial scandals and problems in the securities market or global economy. That leaves little time to work to improve life for investors, publicly traded firms and other registrants, Wallison said, but Cox did that in his XBRL plan by “focusing on what his predecessors have almost wholly ignored.” If Cox makes XBRL ubiquitous, “it will be a great achievement,” no less important than last century’s development of the Generally Accepted Accounting Principles (GAAP). “Now that’s a legacy,” Wallison said.

Companies have shifted voluntarily to XBRL but “someday, and I hope that someday is very soon,” interactive data will be the norm and the standard will become law, Cox said.