Technology has significantly improved investors’ access to financial information in the past decade, and now the U.S. Securities and Exchange Commission is leading the drive to take a further leap into the high-tech world of interactive financial data.

A year ago, the SEC began a voluntary test program that allows corporate issuers and mutual fund companies to file financial reports in a computer language — known as XBRL — that makes financial data interactive. In October, it issued a request for information to software companies seeking insight into ways to receive, store, view and analyse such data. In January, it upped the incentive for issuers to participate in the test by promising to expedite reviews of financial filings in that format.

The SEC is keen. It feels a shift to interactive data would make it much easier to access and analyse financial information. For example, net income figures could be “tagged” so they could easily be found with computer searches and automatically plugged into models by analysts and investors. Having financial data available in such a way, it says, will make it easier for investors to analyse and compare financials, automate the preparation of financial information by issuers and help regulators spot fraud.

“The use of interactive data, if widely adopted, may dramatically enhance the usefulness of reported financial information,” SEC chairman Christopher Cox says. “Consumers of the data may be able to use it more easily and effectively. Potentially, computer-tagged data could provide real-time operational information for business managers. And its instant availability would dramatically streamline and accelerate the collection and reporting of that same financial information for the commission and the public.”

The U.S. effort hasn’t escaped the attention of Canadian regulators. Eric Pelletier, manager of media relations at the Ontario Securities Commission in Toronto, says the OSC is “monitoring technology that could allow issuers to provide financial filings that incorporate interactive data.” He says the commission probably will issue a notice by summer to explore the issue.

“We would consult our stakeholders before making any decisions, to ensure that we all understand how the technology can be used to make information accessible quickly and easily,” he says.

The move to push adoption of interactive financial data comes in the context of a general acceptance by regulators of the reach and power of the Internet to facilitate the dissemination of financial information. Gradually, the practice of making information available online is replacing the physical delivery of information to investors.

For example, the SEC also recently proposed rules that would allow companies to use the Internet to satisfy proxy material delivery requirements. The current rules require proxies to be delivered in paper form, or electronically if the company has shareholder consent. The new rules would allow companies to satisfy their delivery obligations through a “notice and access” model — posting their proxy materials on a Web site and notifying shareholders of its availability at least 30 days before the shareholders’ meeting. The SEC indicates that it is proposing the move for two reasons: it would make it cheaper for companies to comply with proxy rules and it would make it more cost-effective for individuals, such as dissident shareholders, to solicit proxies.

The shift from actual delivery of documents to providing electronic access raises concerns for some investor advocates and highlights the significance of making access as easy and widely available as possible.

“Ease of access and use take on a higher importance as regulatory policy shifts to the ‘access equals delivery’ mode and eliminates the requirement to deliver disclosure documents unless the investor expressly requests them,” says independent industry observer Glorianne Stromberg.

With the ease of investor access assuming greater import, the SEC is also looking to overhaul its database of financial information, known as EDGAR. It has issued a draft request for proposals for what it imagines will be a multi-year project to update the system’s underlying technology, and ultimately manage the new system. The contract was last awarded in 1998. Now, the SEC indicates, it needs a significant upgrade to accommodate the move to interactive data reporting.

“EDGAR was once state of the art,” says Cox. “Moving from a paper-based world into electronic filing was a significant step in the 1980s. But investors today need access to information in real time, and information that is interactive.”

@page_break@In Canada, regulators indicate they are pleased with the operation of their public database, known as SEDAR. “SEDAR has proven to be very effective in making public company disclosures available to the public,” says Pelletier. “What we are considering is whether emerging technologies that make interactive data possible have the potential to allow investors and analysts to analyse public company information more easily. We will want to hear back from our stakeholders to see if they feel that these technologies could improve the usefulness of the information that we can make available on SEDAR.”

If interactive data is perceived as useful by Canadian issuers and investors, access to the system may become that much more important. SEDAR operates a subscriber service that provides near real-time access to corporate filings, but the cost puts it out of the reach of most retail investors.

David Scott, sales and marketing manager at Toronto-based CDS Inc., which operates the service, says subscriptions cost from $20,000 to $100,000-plus each year. The price depends on the subscriber’s demands, such as what portion of the filings they require, and whether they sell the content to others.

Few retail investors would pay for such a service and, instead, content themselves with free access on the public Web site, usually the next day. “We’ve been made acutely aware in recent years of the demand for a more flexible and affordable service,” Scott says. “CDS is working on solutions, and also looking at how the service can be brought within the reach of the individual investor.”

The introduction of online databases for financial filings has vastly improved investor access to corporate information since the early 1990s. But as regulators contemplate a shift to the use of interactive data, their challenge will be to ensure fair and equal access for all market players. IE