My notes, live, from Dr. William Lutz on The SEC’s Radical Disclosure Overhaul. (Disclaimer: The presentation represents the views of Dr. Lutz and not necessarily the views of the SEC.)
He started off with a definition of “Information”: That which reduces uncertainty. (From Shannon and Weaver’s Mathematical Theory of Communication) If it’s not information, it’s noise. You only want the information that you want.
He says the 10-Q is noise. Lots and lots of noise. Plus there is all the trouble of searching in EDGAR to find the filing. He likes the Hittites tablets that last hundreds of years. There is no difference between the Library of Alexandria and EDGAR. Both have data that are locked down and inaccessible, full of noise. In looking at a 10K for a company in 1996 it was 263 pages. In 2009, it was 1,376 pages.
How do you give investors access to high quality information?
Each year, the SEC collects the address of the filing company 14 times. And not always in the same format.
He advocates having a “company file” with a central repository of information: static company information, periodic information and transaction information. The information needs to be structured and accessible. He then said the magic word: XBLR.
He pointed out that Israel has already deployed this system with true electronic filing. Not just a paper filing turned into text, but the tagging of data to the system. It allows a mash-up of different information from different companies to allow for easier manipulations of the data. he cited an example of finding an insider trading scandal using this data tagging.
This creates more transparency. With this information, everyone can be an accountant and understand the finances of a company. And easily compare that information with other companies.
How do we give investors access to the data they need? In a way that they can use the data?
There is a need to move from a print society to an information society.
- The 21st Century Disclosure Initiative
- Toward Greater Transparency: Modernizing the Securities and Exchange Commission’s Disclosure System(.pdf) report of The 21st Century Disclosure Initiative
(These notes are taken live, so I apologize if I left out anything or misquoted someone. Please forgive any typos or grammatical errors.)