Registered Rep.: You say SEC Chairman Christopher Cox is being treated unfairly. Why?
Philip Moyer: Companies need to report in an electronic data format that can be rapidly analyzed by computer systems designed for both investors and regulators. Cox has called for Interactive Data over 184 times and pushed for a new focus on infrastructure to drive greater transparency. This is not always a politically sexy conversation. Cox has been the most vocal regulator to embrace the digital age, and has taken concrete steps to illuminate the dark corners of disclosure to find the truth.
RR: You argue that the crash in asset-backed securities could have been avoided. How?
PM: The actual loan level data underlying most asset-backed securities (ABS) is, and has always been, filed with the EDGAR system two to three weeks before those issues were priced. But the information was buried in massive documents called Free Writing Prospectuses. You can look at these documents and find million-dollar home mortgages with no money down and no proof of income. The problem was that there were far too few people on the buy-side who were able to easily access this data — and even fewer people who could analyze it before buying an ABS.
RR: What's the problem with disclosure? What will XBRL standard do?
PM: The problem is complexity. For example, in 1997, IBM's 10K filing was 337,349 bytes in size. In 2007, it was 6,340,298 bytes in size — an 18x increase. The company puts thousands of data elements in its report, but the data is buried in narratives that make review and data extraction difficult and time consuming. XBRL (eXtensible Business Reporting Language) is a global reporting standard that a company can use to “tag” every element in its financial statements. In May, the SEC announced a proposed rule that over the next three years all public companies will be required to file XBRL statements. By making financials “machine-readable,” a computer can take the IBM 10K and extract every data element automatically. You've heard the phrase, “Sunshine is the best disinfectant.” Well, XBRL is digital “sunshine” for the investing community without overly burdensome new regulation.