The SEC and Structured Data (Part 1)

The SEC collects massive amounts of data. Much of the data is submitted in html, a format that is difficult to search. Ten years or so ago, the SEC started to require the filing of some information in an interactive format. The format permitted analysis of large amounts of data through the use of "tools" (software).   

The roll out of structured data engendered significant criticism. The requirement that financial statements be submitted in an xbrl format was criticized as the imposition of an expense with little value. Indeed, the House has adopted a bill that would eliminate tagging for emerging growth companies. See HR 5405

Nonetheless, recent developments suggest that the Commission is returning to, and promoting the use of, structured data.  In 2012, the Commission proposed a rule requiring disclosure by resource extraction issuers that had to be filed using XBRL.  See Exchange Act Release No. 67717 (August 22, 2012).  The decision was not a new found interest in data tagging but a result of congressional command.  See Section 1504of Dodd Frank (“The rules issued under subparagraph (A) shall require that the information included in the annual report of a resource extraction issuer be submitted in an interactive data format.”).   Indeed, a contemporaneous rulemaking concerning conflict minerals did not provide that the newly created form would be tagged.     

Nonetheless, by 2013, much stronger evidence of a shift in the Commission’s position began to take shape. First, the agency announced, without notice and comment rulemaking, that Forms 13F would be required to be filed using an online form and filers would be required to “construct their Information Table according to the EDGAR XML Technical Specification.”   

Added impetus was provided by the recommendation of the SEC’s Investor Advisory Committee. In July 2013, the IAC recommended that the Commission adopt a “Culture of Smart Disclosure,” something designed to promote the “collection, standardization, and retrieval of data filed with the SEC using machine-readable data tagging formats.” The rule proposal that year for Regulation A+ and crowdfunding both include forms that would, if adopted, be tagged. Regulation AB likewise required the disclosure of certain information in a machine readable format.

Perhaps the most interesting addition was the speech by Mark Flannery, the recently appointed chief economist and director of DERA. See The Commission’s Production and Use of Structured Data, Data Transparency Coalition’s Fall Policy Conference, Washington, DC, Sept. 30, 2014. The talk emphasized the Commission’s commitment to making data “useable” by the public. See Id.  (“Making useable data available to the public is a key function of many of the Commission’s disclosure rules, and one of the strategies identified in the Commission’s Strategic Plan.”). 

He confirmed that the requirement of machine-readable formats for financial disclosures had become “a routine part of the rulemaking process.” Nothing was automatic. Future endeavors were to consider the appropriateness of tagging (“anticipating what information would be most useful to investors”), the proper format (“Deciding on the right data format involves many considerations, including the complexity of the financial information, need for validation of the reported elements, and the availability of pre-existing industry standards”) and the need to “avoid unnecessary implementation challenges.” 

The speech also discussed a sore spot with respect to structured data, particularly in connection with financial statements: data quality. As the speech pointed out: “Unnecessarily high usage of custom tags by a filer can therefore impair certain financial analyses,” also noting that the “Commission staff is aware" of the issue. Indeed, the speech noted that DERA would continue, “where appropriate,” to “work closely with the Division of Corporation Finance to provide guidance to filers based on these observations.” This looked to be a warning that the DERA/CorpFin partnership could yield additional letters like the CFO Letter concerning XBRL deficiencies, issued in July 2014. 

The speech also set out in specific terms what could be expected from the Agency:   

  • Hence, expect to see more staff observations and updates of filer practices posted on the SEC website.  DERA staff will continue its outreach to corporate filers through seminars, webinars, conferences, and other educational programs. DERA staff are also exploring ways to make aggregated XBRL data available to investors and financial researchers so that they can more easily access and analyze the financial information reported through XBRL submissions. 

The speech, therefore, suggests significant progress toward the goals of increasing the use of structured data and ensuring the quality of the data received by the SEC. The partnership between DERA and CorpFin will provide additional impetus for progress and will reduce the concern that decisions are made in a silo. It is strong movement in the right direction.

J Robert Brown Jr.