Modernizing the Securities and Exchange Commission’s Disclosure System
Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR.
In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements.
A summary of panelist comments would be:
"Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. However, XBRL technology might help improve the usefulness of the new disclosure system by providing a more efficient information distribution. However, one member pointed out that the nature the information is much more important than the way we distribute it. We still lack much important information under the current filling system, like the off-balance sheet transactions, unregulated financial products, especially the credit default swap transactions. We still need to force the companies to disclose this material information to help investor to understand the risk they are facing and further to make their investing decisions."
In addition, some members suggested that the SEC should consult with an top level information provider, like Bloomberg or Morningstar, to figure out what kind of information format and summary most investors need, how to present the data, how to create useful graphs and summary tables.
One panel member stated that: “the information in the EDGAR system is a national treasure, but we need to present it in a more attractive way to our audience, or we might not have people to appreciate it and take a look at the treasures."
In the second panel, panelists provide suggestions for a future disclosure system. The goal of the system is to reduce filing cost and to provide more timely information to investors.
One panelist stated that the goal of the new system is “not to find a way to make the candle burn longer but to create a light bulb to replace the candle.” “The SEC should control the technology to do the job, instead letting the technology bind them.”
There are several challenges to developing this system. Some outlined were:
How to make sure all material information is disclosed in this system?
How to transfer some important footnote information or qualitative information into this new system?
How to disclose the information about unregulated products, like credit default swap?
How to broaden the scope of the information without increasing the burden for companies?
These issues were raised during the panel as was the need for further discussion to find solutions.
We see that the nature of the information is still the most important issue in this new disclosure system.
One member argued that “we want a real time disclosure system, but that is a little bit unrealistic.”
“We still need periodic report filing system to force companies to disclosure their information to increase transparency. But the goal is to force these companies to think about where they are and where they should go in the future,” said by one member in this panel.
In sum, we need to find a way to make the new disclosure system more useful to both institutional investors as well as individual investors. As one panelist noted: “We should not only make it work for the Wall Street, but also make it work for the Main Street.”
The 21st Century Disclosure Initiative seeks not only to creating a more sophisticated system for investors, but also to prevent future financial market turmoil.
As SEC Chairman Christopher Cox mentioned in his opening remarks: “The investors have a right to know the truth — and the risks — about the securities that trade in our public markets.”
Communicating these truths to investors and forcing companies to disclose these truths via this new system will be the main consideration for this new disclosure initiative.
E.M. Chang
MA, Economics (2009)
George Washington University
Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR.
In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements.
A summary of panelist comments would be:
"Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. However, XBRL technology might help improve the usefulness of the new disclosure system by providing a more efficient information distribution. However, one member pointed out that the nature the information is much more important than the way we distribute it. We still lack much important information under the current filling system, like the off-balance sheet transactions, unregulated financial products, especially the credit default swap transactions. We still need to force the companies to disclose this material information to help investor to understand the risk they are facing and further to make their investing decisions."
In addition, some members suggested that the SEC should consult with an top level information provider, like Bloomberg or Morningstar, to figure out what kind of information format and summary most investors need, how to present the data, how to create useful graphs and summary tables.
One panel member stated that: “the information in the EDGAR system is a national treasure, but we need to present it in a more attractive way to our audience, or we might not have people to appreciate it and take a look at the treasures."
In the second panel, panelists provide suggestions for a future disclosure system. The goal of the system is to reduce filing cost and to provide more timely information to investors.
One panelist stated that the goal of the new system is “not to find a way to make the candle burn longer but to create a light bulb to replace the candle.” “The SEC should control the technology to do the job, instead letting the technology bind them.”
There are several challenges to developing this system. Some outlined were:
How to make sure all material information is disclosed in this system?
How to transfer some important footnote information or qualitative information into this new system?
How to disclose the information about unregulated products, like credit default swap?
How to broaden the scope of the information without increasing the burden for companies?
These issues were raised during the panel as was the need for further discussion to find solutions.
We see that the nature of the information is still the most important issue in this new disclosure system.
One member argued that “we want a real time disclosure system, but that is a little bit unrealistic.”
“We still need periodic report filing system to force companies to disclosure their information to increase transparency. But the goal is to force these companies to think about where they are and where they should go in the future,” said by one member in this panel.
In sum, we need to find a way to make the new disclosure system more useful to both institutional investors as well as individual investors. As one panelist noted: “We should not only make it work for the Wall Street, but also make it work for the Main Street.”
The 21st Century Disclosure Initiative seeks not only to creating a more sophisticated system for investors, but also to prevent future financial market turmoil.
As SEC Chairman Christopher Cox mentioned in his opening remarks: “The investors have a right to know the truth — and the risks — about the securities that trade in our public markets.”
Communicating these truths to investors and forcing companies to disclose these truths via this new system will be the main consideration for this new disclosure initiative.
E.M. Chang
MA, Economics (2009)
George Washington University