Thank you, Chairman Cox.
I am pleased that the Commission is considering these rules concerning the use of interactive data, and I am pleased to support the recommendations.
Mandatory disclosure is at the core of what the Commission does. Arming investors with useable information promotes informed investor decision making, boosts investor confidence, and leads to more efficient securities markets that have greater integrity.
For nearly 75 years, the SEC’s signature mandate has been promoting disclosure and transparency in U.S. financial markets. For a disclosure-based regulatory regime like the federal securities laws to work, not only must information be disclosed, but the information must be disclosed in a format that allows investors to use it effectively. In other words, regulatory focus can’t simply be on “what” information is disclosed, but also on “how” information is disclosed.
As disclosures become complex and voluminous, transparency can be compromised. The rules before the Commission today do not call for more disclosure. Instead, they focus on enabling users of SEC filings to search, process, and interpret already-required disclosures more efficiently and effectively. Interactive data, coded using XBRL tags, will meaningfully revamp how disclosures are formatted and presented, thus increasing the usability — and therefore value — of what is disclosed.
XBRL makes it easier and less expensive for investors and other users of financial information to access it. It is not just the ability to access information that matters. Anyone can with relative ease access an issuer’s disclosures by looking at the issuer’s most recent periodic report online. The next step is the ability to manipulate the information that is available. XBRL will effectively allow a user to package the information that is disclosed as the user sees fit given its interests and objectives. Accordingly, users will have the ability to focus more quickly and easily on the important information they desire in these reports. XBRL, therefore, should lead to more transparency and thus provide the opportunity for better decision making by investors.
With all of XBRL’s benefits, there is one potential unintended consequence that I want to note. Financial information, although important to investor decision making, is backward looking. A company’s financials tell us how the company performed in the past. Management’s plans for the future — that is, how management intends to address challenges and capitalize on opportunities — also is relevant to an investment decision.
As XBRL makes it easier for investors to use financial statements, investors should not lose sight of the important information contained in a company’s narrative disclosures, such as the MD&A. Simply put, I want to urge investors against excessive emphasis on tagged financial information. Tagged financial information is only one piece of what investors should consider. To be clear, this is not a suggestion to tag narrative disclosures. Rather, this is a word of caution to investors as they begin to take advantage of the benefits of XBRL that a company’s narrative disclosures remain as important as ever.
I would like to echo the Chairman and thank each of the many members of the staff who have worked on these rule proposals in the Division of Corporation Finance, the Division of Investment Management, the Office of the General Counsel, the Office of Interactive Disclosure, the Office of Economic Analysis, and the Office of the Chief Accountant. Finally, I would like to thank the Chairman, the other Commissioners, and all of our counsels for their dedication and attention to these proposed rules.