TAP to SEC on EDGAR Access (fwd)
The following is a letter from TAP to the SEC and Rep. Dan Frisa on EDGAR access on the Internet. The EDGAR database contains the full text of corporate disclosure filings made under the SEC full disclosure program. It is the world's most important and valuable database of financial information. Last week the Internet Multicasting Service (IMS) announced that it was ending its NSF funded free dissemination of EDGAR filings from its town.hall.org site on October 1, 1995. On July 27, 1995 a bill was introduced in the House of Representatives to privatize the EDGAR system. On Monday the 14th the SEC held a meeting on the future of EDGAR, and there was a great deal of support for the free NYU/IMS EDGAR dissemination project. A few hours ago the SEC announced that it would find a way to continue a free Internet dissemination program for the EDGAR data. jamie love (firstname.lastname@example.org; 202/387-8030)
Taxpayer Assets Project P.O. Box 19367, Washington, DC 20036 voice 202/387-8030; fax: 202/234-5176
August 14, 1995
Chairman Arthur Levitt (via fax: 202/942-9646) Commissioner Steven Wallman (via fax: 202/942-9563) Securities and Exchange Commission Washington, DC 20549
Congressman Dan Frisa U.S. House of Representatives Washington, DC 20515 (via fax: 202/225-3187)
This letter outlines our thoughts about the future of the Securities and Exchange Commission (SEC) Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, covering topics that were presented in your August 14 EDGAR Technology Conference. Before addressing the more technical questions raised in the conference, we will discuss issues raised by the announcement that the current free Internet dissemination project will be terminated on October 1, 1995, and the July 27, 1995 introduction of HR 2131, the Capital Markets Deregulation and Liberalization Act of 1995, which contains a provision that requires the SEC to solicit proposals for the privatization of EDGAR.
I. Pending Demise of NYU/IMS Internet Dissemination Project.
Like many others, I was cheered by the Clinton Administration's announcement in the fall of 1993 that the National Science Foundation would fund a 2 year demonstration project run by New York University (NYU) and the Internet Multicasting Service (IMS) to show how the Internet can be used to give citizens better access to government information. The choice of the SEC's EDGAR database for this experiment was a good one, for several reasons. The database was large and complex, and the SEC "full disclosure" filings had never been widely disseminated to the public.
The NYU/IMS initiative was successful in dispelling the notion that online dissemination of data was extremely costly. The SEC staff and the EDGAR contractor had earlier estimated that it would cost $18 million per year to connect just 1,400 libraries to the EDGAR system, but the NYU/IMS project connected the world for less than $350 thousand per year. The Internet dissemination project also found a new and larger audience for the data, as thousands of individual investors, reporters, students, and researchers of all kinds used the Internet to search the EDGAR database. The SEC's database was finally available beyond the corporate suites to the nation's main streets.
The Internet project also spawned a large number of new value added services that took the public domain data and created new innovative products. Some firms collected the data off the NYU/IMS site for new high tech artificial intelligence searching engines, while others, including many online publishers, used pointers to the NYU/IMS data for new derivative products.
Despite the success and popularity of the Internet dissemination project, it has continued to meet baffling resistance from the SEC's own data processing staff. In reporting on the demise of the NYU/IMS site, the August 12, 1995 issue of the St. Petersburg Times quoted the SEC staff as saying:
The whole process of data dissemination costs money. Do you want taxpayers to pay for corporations -- including the press -- to get free filings?
This gets us to a key question. Should the government pay for the free distribution of the EDGAR filings on the Internet, or should this be solely the domain of commercial publishers?
The fy 95 budget for the SEC was $303 million. The line item cost of the "full disclosure" program was $60 million, which includes more than the costs of computer and telecommunications services. Thus, for $60 million (or the expected cost of $66 million for fy 1996), the government can collect the data, and for $.3 million it can actually get the data out to the public. That is, using the fy 96 budget, $66 million without the Internet dissemination project, and $66.3 if the public is given access to the data without purchasing the documents from commercial vendors. It does not seem unreasonable to make the small investment necessary to deliver the goods to the general public. Otherwise, the government is spending more than $60 million for something that is only available (on a timely basis) to those who already enjoy the greatest privileges.
This should not be considered a partisan or right/left issue. In announcing his plans for what is now known as the Library of Congress "THOMAS" system, Speaker Newt Gingrich made a point of saying that "information will be available to any citizen in the country at the same moment it is available to the highest paid Washington lobbyist." Later, in a January 14, 1995 issue of the National Journal on initiatives to use the Internet to broaden public access to government information, Gingrich said "I want every American to have the maximum access to information, with the minimum cost, with the greatest convenience." These views seem strangely out of sync with the news of the pending demise of the EDGAR Internet project.
II. The Proposed Privatization of EDGAR.
The July 27, 1995 introduction of HR 2131, the "Capital Markets Deregulation and Liberalization Act of 1995," contains a provision that requires the SEC to solicit proposals for the privatization of EDGAR. It is difficult to know what this would mean, since EDGAR is already operated by private contractors, including BDM International, LEXIS/NEXIS and Disclosure, among others. Indeed, even the NSF-funded NYU/IMS Internet dissemination project is run by contractors who are not government employees.
The one item that should not be privatized is the EDGAR database itself. No private entity should gain exclusive control or ownership over these public documents. The important area for privatization is in the area of value added services, and without equal and royalty free access to the underlying EDGAR records you will simply place huge roadblocks in the way of innovative publishers and others who seek to broaden access and gain greater insights from the database. For a comparison, look at the disaster in the market for court opinions, where West Publishing's private monopoly of corrected text and page numbers has driven up costs and kept out innovative firms.
At the Monday workshop, the SEC staff circulated a number of half-baked proposals for eliminating the government's role in the project, including one that would allow firms to simply post their disclosure reports on their own Internet sites, and another that would have firms "file" reports with a private entity, which would collect fees for both filing and disseminating the data. Both proposals were widely criticized at the Monday meeting on practical and technical grounds. For example, TAP asked how a no-filing system would work if a firm went out of business, and the records were needed for civil litigation or criminal investigations. Others asked how the SEC would prevent firms from changing their disclosures statements from hour to hour, or how the SEC would evaluate excuses, like network breakdowns, for failures to make reports available on a timely basis. The tasks of insuring data integrity and archiving are important and difficult to manage without control over the data.
Before any "private" system is likely to work, the government would have to retain so much regulatory oversight (how would the dissemination of disclosure reports be priced by the "free market"?) that it seems best to just accept the fact that the SEC is a government agency and that it performs a very useful role in protecting investors and insuring confidence in capital markets.
III Technical Improvements in EDGAR
There were a number of proposals to improve the format of the EDGAR reports, with additional standardization of financial reporting, greater tagging of report contents, and new multimedia capabilities. TAP supports efforts to improve the format of the existing reports, particularly in areas that would make it easier to use the financial tables or to format the data. TAP opposes proposals to use proprietary formats for data, and urge the SEC to join many others in moving toward SGML, an open public domain standard for formatting data.
James Love Director, Taxpayer Assets Project email@example.com; voice: 202/387-8030
The Taxpayer Assets Project (TAP) was created by Ralph Nader to monitor the management and sale of government property, including government information and information systems. Over the past five years TAP has been active in a number of efforts to broaden public access to government information, including the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, which contains electronic copies of documents filed by firms under the SEC's full disclosure program. We are also among those that used the NSF funded Internet dissemination project which was run by New York University (NYU) and the Internet Multicasting Service.
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