Investors ask SEC to commit to “smart disclosure”: replace documents with machine-readable formats


On July 25th the U.S. Securities and Exchange Commission’s Investor Advisory Committee, a formal advisory body established in 2010 by the Dodd-Frank financial reform, recommended that the SEC adopt machine-readable data tagging formats, such as XBRL, for the information it collects under the securities laws. Under section 911 of Dodd-Frank, the SEC must “promptly” issue a formal response. 

Data tagging formats like XBRL, said the Investor Advisory Committee, can make corporate disclosures “fully machine readable and more easily accessible” (p.1). The SEC currently requires public companies to submit an XBRL version of each financial statement alongside the conventional plain-text version. The XBRL format assigns a unique electronic tag to each financial element, allowing the information to be analyzed without transcription. But because most of the rest of the information filed with the SEC is in unstructured documents, “it is difficult [for investors] to retrieve, analyze and compare. These actions must, therefore, be done manually on a filing-by-filing basis” (id.).

The Investor Advisory Committee recommended:

  • The SEC should publicly adopt a “culture of smart disclosure” and “integrate data tagging into all future rulemaking and rule revision efforts that involve the collection of data by the SEC” (p.3).
  • The SEC should seek to reduce the costs of submitting regulatory filings in machine-readable formats by, for instance, setting up web-based forms that automatically apply data tags (p. 4).
  • As it converts existing reporting requirements from unstructured documents to structured data formats, the SEC should prioritize forms that help investors participate in corporate governance, such as executive compensation and shareholder votes within proxy statements, mutual funds’ proxy voting records, and proxy solicitation voting results (p. 5).
The committee used the language of the White House’s “Smart Disclosure” initiative, which encourages agencies to release complex information “in standardized, machine readable formats” to “enable consumers to make informed decisions.” The committee also cited the principles of President Obama’s Open Data Policy and legislation originally introduced by Rep. Darrell Issa (R-CA) to impose machine-readable formats on federal spending (DATA Act) and financial regulation (Financial Industry Transparency Act).

These recommendations are the first statement by a U.S. investor group on the need for the SEC to open its regulatory data by replacing documents with machine-readable data formats. They mirror the findings of Columbia Business School’s Center for Excellence in Accounting and Security Analysis, which in January reported that U.S. investors demand “timely, structured, machine-readable data” to track companies’ performance. The Columbia study found that investors are not using XBRL-formatted financial statements to analyze investment opportunities because they do not trust the quality of the data. The Investor Advisory Committee’s new recommendations call on the SEC to ensure that data tags are uniformly applied (p.3) – the chief complaint of investors who have tried to use the existing XBRL-formatted financial statements.

The Investor Advisory Committee made its recommendations one week after the House Appropriations Committee approved language calling on the SEC to explain how it would “ensure that investors are receiving timely, accurate, and meaningful corporate disclosures in an understandable and accessible format.”

The Data Transparency Coalition supports the Advisory Committee’s call for the SEC to replace outdated documents with open, structured data throughout all the reporting requirements that it administers under the nation’s securities laws. We believe that the adoption of machine-readable formats can deliver actionable intelligence, support Big Data analytics, and cut compliance costs. Last May we demonstrated the power of open data to transform federal spending. The same is true in financial regulation.

We look forward to the SEC’s responses to the House Appropriations Committee, the Investor Advisory Committee, and our growing coalition of tech companies and entrepreneurs hoping to use the federal government’s information – once it is made available as open data, rather than within inaccessible documents! – to build new businesses.