In its ongoing quest to modernize its EDGAR (Electronic Data Gathering Analysis and Retrieval) system, the SEC (Securities and Exchange Commission; http://www.sec.gov) has awarded three contracts worth a total of $54 million to upgrade the system into a "dynamic real-time search tool with interactive capabilities." The concept is certainly past due, as the SEC's EDGAR in its present incarnation is a throwback to a much earlier technological time. When originally created a decade ago, the notion of making corporate financial filings publicly available for free was extraordinarily controversial. Government resistance was strong. That may provide one reason why the resulting system was not, technologically speaking, state-of-the-art even then. Private companies, such as 10-K Wizard; EDGAR Online, Inc.; and Global Securities Information (now owned by Thomson); jumped in to add the functionality required by sophisticated searchers. Of course, those companies did not provide the data for free.
The contracts, awarded by the SEC on Sept. 25, 2006, embrace the idea of interactive data, in contrast to the static data now in place. This will be done by moving to XBRL (eXtensible Business Reporting Language) for the filings. Keane Federal Systems (http://www.keane.com/federal) will receive $48 million to modernize and maintain the EDGAR database. The initial 3-year contract is renewable for another 3 years on a year-by-year basis. The costs could run higher, however, because the $48 million does not include further costs of task orders that will undoubtedly be added to the contract to complete the EDGAR transformation.
The maintenance portion of the contract means that Keane will take over from Northrop Grumman Corp., which currently maintains the database, and has about 3 months to understand how the system works. Once EDGAR becomes a repository of interactive data, investors and analysts will be able to search for information not just by specific forms, but also across forms. RSS feeds will deliver information from newly filed documents. Keane will work with a number of firms on this contract including BearingPoint, Inc.; Microsoft Corp.; Rivet Software, Inc.; EMC Corp.; and Akamai Technologies, Inc.
The second contract (for $5.5 million) went to XBRL-US (http://www.xbrl.org) to write the necessary taxonomies. The taxonomies will be tailored to individual industries; XBRL-US expects to complete the entire process within a year.
Development of interactive investor tools on the SEC Web site is the goal for the $500,000 contracts, awarded separately to Rivet Software (http://www.rivetsoftware.com) and Wall Street on Demand (http://www.wallst.com).
The Project's Potential Impact
XBRL is already in use by banks, which are required to submit reports in XBRL to government agencies such as the FDIC (Federal Deposit Insurance Corp.), Federal Reserve, and the Comptroller of the Currency. The SEC has had a pilot project for corporations to voluntarily file reports in XBRL, but only 2 dozen are doing so now. Whether (and when) the SEC will change the voluntary status of XBRL reporting to mandatory remains an open question. When the contracts were announced, SEC Commissioner Christopher Cox indicated that it would not be mandatory. However, at an SEC interactive data roundtable held Oct. 3, 2006, on the subject of speeding up implementation of new Internet tools, he seemed to reverse himself by stating that the SEC was investigating how other countries have mandated XBRL.
Cox is a strong proponent of interactive data. He believes it will make comparing the financial positions of companies much easier for individual investors. In fact, it will also make it easier for analysts and information professionals, if the end result optimally implements XBRL as envisioned. Amelia Kassel, an independent researcher who wrote "The Many Faces of EDGAR" in the May/June 2005 issue of ONLINE (http://www.infotoday.com/online), believes that taxonomies make SEC data vastly more useful. The need for taxonomies is her primary reason for using third-party vendors of SEC reports rather than SEC EDGAR now. She cautions, however, that the taxonomies must be of high quality to be a boon to searchers. She also speculated about the effect of the SEC's EDGAR transformation on those third-party vendors.
In late 2005, when the SEC issued the RFP for the contracts awarded this September, the SIIA (Software & Information Industry Association; http://www.siia.net) voiced its concerns in a letter to the SEC. It requested that the SEC work collaboratively with the private sector, not develop substantial value-added information products and services in competition with the private sector, and continue to provide its Public Dissemination Service (or Level One data feed) to redisseminators of EDGAR data. David LeDuc, SIIA's director of public policy, said it's too early to tell whether the end product from these contracts will meet with the association's approval, but the SIIA will continue to watch the situation.
What about the redisseminators? According to Elise Soyza, director of sales and marketing at 10-K Wizard, "It's all good news." She's looking forward to receiving data in XBRL and believes it will enable the company to provide even better service to customers. She notes that costs should decrease while speed of delivery increases. Further, a large part of 10-K Wizard's business involves custom data feeds. Even with interactive data, the SEC probably won't provide that service. Echoing Soyza, EDGAR Online's SVP for Marketing and Business Development, Sue Childs also has a positive take. EDGAR Online is a huge supporter of XBRL, and she's thrilled that people are now talking about it. She thinks that this will result in a deeper understanding of XBRL technology. She also points out that EDGAR Online has been working with XBRL for a long time, and this will allow the company to build next-generation analytical tools. Both Soyza and Childs are a little skeptical about whether the timelines given by the SEC are realistic.
An interactive EDGAR will certainly affect individual investors, researchers, and the analyst community favorably. The private sector (comprised of companies that receive EDGAR data, enhance it, and sell it) will have to watch developments closely to stay ahead of the SEC. A major beneficiary should be the SEC itself. With the greater transparency gained by reports filed in XBRL, the enforcement role of the agency will gain ground.
What about the EDGAR name? No one has decided yet whether it will stay or not. EDGAR may go the way of Jeeves, which Ask.com retired when it reinvented itself. As a sleek new database, replete with interactive data, the transformed EDGAR may warrant a new moniker as well. For that, we'll have to wait and see.