SEC chief seeks data to empower tiny investor

THE BALTIMORE SUN

SEC Chairman Christopher Cox gave a widely ignored speech last week that could mean a lot more to investors than articles on, say, the Enron prosecution.

That's old news. This is about avoiding the next Enron.

In videotaped remarks to a software convention, Cox promised to push hard to give the ordinary investor the information she needs to bypass the Wall Street advice machine and become her own stock, bond or mutual-fund expert.

"I'm not thinking years. I'm thinking months," Cox said to the conference in San Jose, Calif., on Wednesday. "And the SEC will play a leadership role."

Specifically, Cox wants the financial reports that corporations file with the Securities and Exchange Commission to become interactive so shareholders or bondholders can quickly find and compare the information they need, instead of scrolling through pages and pages of documents on the Web.

"Theoretically, investors with a PC and the right software would be able to extract what they want" out of the agency, says Jack Ciesielski, publisher of the Baltimore-based Analyst's Accounting Observer. "That will allow them access to vast quantities of statistics that they can manipulate just like the pros do now."

Sounds wonky until you consider that the system should eventually let you cheaply, easily and accurately do almost any kind of "top performer" mutual-fund search of the sort frequently supplied by Money magazine or Morningstar.

And that's only the start. Want to sort mutual funds by tax-efficiency, expenses or turnover? Want to list all funds that own or don't own a certain number of shares in a certain company? Find the best-performing funds with assets under $1 billion and whose managers aren't over-committed elsewhere? An interactive SEC would let you do it.

And that's only for mutual funds. Want to find the highest bond coupons for all companies with balance sheets above a certain liquidity level? Want to search for stocks with the best dividend-, profit- or cash-increase records? The best profit margins? Step right up.

There are software and databases that let you do this sort of thing now. But the more-inexpensive ones (Microsoft Money, Quicken, Morningstar) are limited. The sophisticated ones used by Wall Street cost tens of thousands of dollars. And all of them require people to read SEC documents and re-enter the information in a computer, which hurts accuracy.

A fully interactive SEC would be much more accurate and affordable. It could also allow cool research beyond the stuff most investors focus on.

Want to find the highest-paid chief executives in your state? The U.S.-based company with the most annual sales in Europe? Performance of unionized companies versus non-unionized ones? Depending on how deep the data-tagging goes, it could be available with a few clicks.

Making this happen will require both the SEC and corporate America to start using so-called eXtensible Business Reporting Language for reports. XBRL "tags" each piece of information so it's searchable and extractable by category.

You could download SEC data onto your own spreadsheet or buy XBRL programs - Microsoft is working hard on some, Ciesielski says - with pre-cooked and customizable searches.

So far few companies are filing in XBRL, and the SEC isn't nearly ready to publish in it. But Cox, a former California congressman and technology buff, promises to boost resources for the job and has given corporations incentives such as expedited document review to get them to use it.

Of course the standard won't just help investors. It will advance the technology revolution another couple of notches by spreading information, reducing scut-work and improving productivity for everybody connected with it.

It should make it easier for the SEC to catch crooks by flagging accounting inconsistencies and other weirdness. (The Internal Revenue Service and the Federal Deposit Insurance Corp. are also in various stages of XBRL implementation.) It should help companies comply with Sarbanes-Oxley requirements and other regulations.

It should vastly improve the analysis of firms by academics.

But it also will give the small investor more tools not only to declare independence from professional advisers but to beat them. Just before Enron collapsed more than a dozen analysts reportedly had "strong buy" recommendations on the stock.

If Sarbanes-Oxley and related reforms produced the post-Enron era, maybe an interactive SEC will bring on the post-post-Enron era.

jay.hancock@baltsun.com

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