Following EDGAR's lead

S. Vaidya Nathan

EDGAR, a key part of the regulatory oversight by the US Securities and Exchange Commission (SEC) of issuers of securities, is now in the third day of a planned halt.

Tomorrow, EDGAR should be buzzing again after a significant change. The three-day cessation was to enable EDGAR make a transition to the Internet in a complete way and for this purpose EDGAR was closed on November 24 to give SEC a long weekend to make the transition.

Once this is done, EDGAR's efficacy and usefulness may acquire a new hue. Not that it was not useful in the past, but now with issuers and investors is a position to use the Internet-enabled EDGAR, a new phase in information-gathering and dissemination is likely to come about in the US markets.

EDGAR is the Electronic Data Gathering, Analysis and Retrieval system which takes in all filings required of issuers of securities by the SEC. EDGAR is of relevance and importance in the Indian context, given the inefficiencies that abound in the process of information dissemination. The need to use the Internet effectively to improve the speed, efficiency and timeliness of information flow by Corporate India, and its advantages to the community of investors, is a sine qua non if SEBI is to move corporate disclosures to another level.

Towards that end, SEBI should take a close look at what the SEC has been up to with EDGAR, as it could help SEBI leapfrog different stages of the development of a system and move straightaway to a one that is Internet-enabled and effective. Subsequent upgrades to suit systemic changes will be a must on a continuous basis and that is something that can be handled quite comfortably by SEBI later on given the technology expertise that is available from the private sector.

Web-enabled EDGAR: To get an idea of what SEBI could get from the most recent SEC upgrade, a snapshot of what the SEC has done to EDGAR gives a good idea. The following are key features of the changes that have been put in place:

*EDGARLink, the SEC's online filing software, now allows companies to file reports over the Web.

*Web-filings using the updated software will become mandatory from November 2000, with a grace period till mid-April 2001 to allow all companies to make the requisite system changes and upgrades.

*PureEdge, a leading provider of legally binding XML documents, has provided EDGARLink with predefined document templates to be used by public companies filing with the SEC for all 397 SEC forms.

*The documents can be submitted online securely with a log-on ID and a password given by the SEC.

*Additional security can be added to the documents by applying a digital signature from VeriSign.

*The forms can be downloaded from the EDGAR Web site, completed, validated, digitally-signed and returned securely to the SEC.

*Filers can also attach subsequent and related documents to the template forms.

*The SEC anticipates receiving an average of 6,000 filings per day from the already registered 110,000 separate entities, representing 28,000 public companies.

*The new system will move to an XML format and offer a more graphical, easy-to-use interface.

*The SEC will require all public companies to submit all filings online through the EDGARLink Web site using the new technology.

Embracing EDGAR: EDGAR has other worthy aspects SEBI should take note of as it moves towards a similar system in India:

*The manner in which the SEC has not hesitated to use reputed private sector firms in the construction and maintenance of the system on an ongoing basis.

*The time-bound manner in which every upgrade and change has been ushered in is critical once such a system is put in place.

*The use of private enterprise to effect periodic upgrades to EGDAR.

*The unveiling of a broad vision plan for EDGAR. The idea is outlined in SEC's site www.sec.gov.

*And lastly, the manner in which private firms have been allowed access to the database and various filings is something that can really (if adopted) make a difference to the SEBI's efforts at regulating the markets.

Sitting tight: Today there is a lot of information filed with SEBI by various issuers. But the effectiveness of the use of such filings is open to question. One example could be the mutual funds where SEBI gets a whole range of information at more frequent intervals than the public.

But one rarely gets to know what has been filed, whether the filing made is in line with the requirements of the regulatory framework, and most important, there is a serious doubt about the utility of such filings. By throwing open the entire filings made by issuers of securities, SEBI may find the emergence of small firms focussing on the scrutiny and reporting of specialised lines of corporate information.

In the US, there are quite a few firms tracking mutual fund filings, top management buying/selling of stocks, takeovers, mergers and acquisitions, IPOs and the buyback of shares. By this process, the mass of filings is subject to close scrutiny by outsiders apart from any detailed work done by the SEC itself.

The extent to which the SEC has thrown open its data base is evident from the fact that there is a listed company called EDGAR Online whose business is linked to the mass of data made available to the SEC by issuers of security. EDGAR Online, Inc is the leading business-to-business and Web-based provider of business, financial and competitive information derived from the SEC data. The company sells to the corporate market and Internet portals and runs five destination Web sites (http://www.edgar-online.com, http://www.freeedgar.com, http://www.ipo-express.com, http://www.insidertrader.com, http://www.fd-express.com).

It is towards such a state that the information-gathering and dissemination has to move to be useful to investors and also ensure that SEBI can focus on other key areas. It could also provide SEBI revenue streams that can bolster effective implementation.