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Regulation and Compliance > Federal Regulation > SEC

SEC Commissioner Calls for New ‘Disclosure Paradigm’

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Kara Stein, commissioner of the Securities and Exchange Commission, spoke at the Rocky Mountain Securities Conference on Friday, calling on the industry to envision more innovative ways to deliver vital information to investors and consumers. The conference is co-sponsored by the U.S. Securities and Exchange Commission and the Business Law Section of the Colorado Bar Association.

Stein asked, “How we can breathe new life into the critical matchmaking process” between investment companies and investors?

Markets were “revolutionized” after the Great Depression, Stein said, as disclosure improved relationships between investors and companies. That has led to “the healthiest, most vibrant capital markets in the world,” however, she said it was important to continue to refine efficient disclosure processes.

“It’s time to usher in a new disclosure paradigm for the future, one that will benefit both investors and companies for the decades to come,” Stein said.

To that end, the SEC is currently redesigning EDGAR, she said, in a “multiyear initiative to develop the next-generation electronic disclosure system.”

EDGAR receives more than 700,000 disclosure documents every year, Stein said, and “although technology has been evolving dramatically, EDGAR has not changed much.” The redesign isn’t a cosmetic change, but part of a “larger more holistic effort.”

Another current initiative is the Disclosure Effectiveness Project the SEC is undertaking to improve the “form and substance of various disclosures.”

These two initiatives are part of a larger effort to “reimagine disclosure and how information can be exchanged between companies and investors,” she said.

Companies and investors are demanding a new way to communicate, Stein said, as investors want better information and companies want a lighter burden. “The technology to do both has arrived,” Stein said.

Investors want “better, not necessarily less, disclosure.” Stein said, “If companies want investors’ money, they need to be nimble.”

She proposed investor testing to determine exactly the kind of information that is valuable to investors.

Delivery of disclosure is important, too. “In the paper world, the way I write down information matches the way you’re going to see it,” Stein said – the reporting format matches the viewing format. In a digital world, content is viewed across multiple devices in multiple formats.

She pointed to newspapers as an example of making the same information available in different formats. Newspapers look different online, in an email and in the daily edition.

Incorporating structured or machine readable data can pull data from certain filings and present it in a format the investor requests, Stein suggested. It can help companies establish a “company profile approach to disclosure,” where basic information is stored in a centralized database and updated easily, instead of by submitting multiple filings.

There are currently more than 500 active forms in EDGAR, Stein said. “Shouldn’t we instead allow retail investors and others in the market to just ask for the information they want” pulled from the various relevant documents?

“Why shouldn’t a natural language query produce an interactive map that shows the location of the company’s facilities along with material information?” Stein said. 

She added that the quality of structured data must be “carefully vetted and monitored,” but that efforts to improve delivery of information to investors shouldn’t be stymied.

Stein called for a digital disclosure task force that includes investors, analysts, academics, investment companies and technology experts. “We must do more than ask questions and concept releases. We must lead.”

— Read David Grim & Stephen Luparello: SEC Fiduciary Formulators — The 2016 IA 25 on ThinkAdvisor.


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