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TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE
August 15, 1995
Crown Jewels Campaign - EDGAR
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 (love@tap.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)
Dear Sirs:
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.
Sincerely
James Love
Director, Taxpayer Assets Project
love@tap.org; voice: 202/387-8030
Appendix
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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