A precocious kid named "Edgar" reaches adolescence. (Electroninc Data Gathering, Analysis and Retrieval System) (SEC Advisor)by Coffey, William J.
Under its Congressional mandate, the SEC requires full and fair disclosure of information concerning securities offered in interstate transactions. EDGAR will provide investors with timely information that otherwise would not be readily available. The EDGAR system is also expected to enhance capital formation and increase market liquidity through rapid dissemination of financial data.
With the SEC staff reviewing filings with computers rather than paper copies, acceptance is expected to be faster and more efficient. Broad circulation of electronically filed data will be virtually instantaneous through third party vendors such as CompuServe. This reduced time-frame is expected to revolutionize the manner in which investment decisions are made.
"Analyses could be as sophisticated as, for example, collecting and showing on computer screens all stocks that closed at less than 7 times earnings which yield over 6%, sell at discounts from book value and have low debt-equity ratios, within specified industries." (SEC Pub 2103, undated) Had EDGAR been operational in the 1980s, the merger, acquisition, and junk bond activities of that period might have been markedly less extreme and chaotic.
Development of EDGAR
In 1983 the SEC conceived the idea and began developing a system allowing filers to electronically submit various documents required under the Securities Acts administered by the SEC. In May 1984, it introduced an EDGAR pilot program for this purpose. Under EDGAR temporary rules (Rule 499), the SEC called for filers to participate on a voluntary basis. Filers were allowed to use one of three electronic media: diskettes, magnetic tapes or modems utilizing either asynchronous or bisynchronous transmissions. However, electronic submissions did not relieve pilot registrants from paper copy filing requirements.
The SEC received its first EDGAR pilot filings in September 1984. It closed the pilot program in July 1992. Over the course of the program, approximately 1,800 participants submitted over 116,000 electronic filings. The EDGAR operational system followed the pilot program and pilot participants became the first filers (transitional filers) to submit filings under the operational system. The SEC is currently phasing all the remaining filers into the EDGAR system that come under the electronic mandate. Exhibit 1 shows the development and implementation of the EDGAR system.
The EDGAR operational system requires electronic filing of registration statements such as the S-1 under the 1934 Securities Act and under the 1933 Securities Exchange Act of periodic reports such as the 10-K annual reports, the 10-Q quarterly reports and the 8-K current report. In addition to the two primary Securities Acts of 1933 and 1934, EDGAR also provides a filing process for selected documents required under the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, and the Investment Company Act of 1940.
Joining the EDGAR System
Public companies register as electronic filers using Form ID.
Upon receipt, the SEC provides an EDGAR filer manual and EDGARLink software. The manual is a 400-page user's guide containing information on how to EDGARize a filing.
For each type of filing, the manual prescribes the submission format and provides a list of electronic tags needed for electronic filing. The EDGARLink software is a DOS-based word processing program developed by BDM International, Inc. (the SEC contractor) to assist filers with the preparation and submission of documents. Although filers may use other software packages, the format must conform to EDGARLink guidelines.
Along with the manual and the software, the SEC also provides each filer with four access codes that are referred to and used throughout the manual. The purpose of these codes is to prevent the unauthorized transmission of data. Exhibit 2 shows a list of these codes with the purpose of each.
EDGARization is the process of preparing a filing in electronic format for submission to the SEC. The formatting requires header and other data tags added to the documentation to be transmitted in ASCII print format.
In four recent securities act pronouncements, the SEC has established rules for the operational phase of the EDGAR system. The first deals with electronic transmissions to the Division of Corporation Finance and selected transmissions processed by the Division of Investment Management. The second applies to electronic transmissions by investment companies, business development companies, and institutional investment managers. The third release addresses electronic transmissions processed by the Office of Public Utility Regulation within the Division of Investment Management.
These first three releases require filers to tag selected items of financial information (Financial Data Schedule) that will permit easy identification and extractions by the electronic system. Examples include financial ratio calculation and database searches of registrants with specific financial characteristics. The fourth release requires filing fees to be remitted by certified (or similar) check to a lockbox or wire transfer to an SEC account.
Exhibit 3 lists the steps in the EDGARization process.
Regulation S-T contains a group of specific rules applicable to electronic filing. Its purpose is to streamline the rule changes applicable to electronic filers by grouping them together in a separate regulation. Regulation S-T is similar to the aggregation of disclosure rules found in existing Regulations S-K and S-B that apply to registration and reporting requirements under various acts administered by the Commission.
Mandated Electronic Transmissions
The EDGAR operational rules mandate, with few exceptions, electronic submission of all documents including filings, correspondence, and supplemental information required under various acts administered by the Commission.
However, not all publicly traded entities are immediately required to file electronically. The SEC has established a phase in schedule covering the next few years that will require most registrants to file electronically. Once a filer becomes subject to the mandated filing rules, all future documents must be submitted electronically unless an exemption applies.
In the pilot program, voluntary electronic filers were required to submit the same number of paper copies as all other registrants. Pilot filings were not "live" filings because they did not fulfill statutory- reporting requirements as they now do under the operational system. Still, the SEC requires electronic filers to submit one paper copy under the operational system. This condition applies for only one year after a filer is phased into the electronic filing system. As EDGAR matures, the SEC expects to reduce the number of paper filings.
Exemptions Allowed for Mandated Electronic Filers
The SEC has set forth three provisions that permit modifications by mandated electronic filers:
1. A temporary hardship exemption is automatically granted to registrants who file Form TH. However, this exemption from electronic filing does not extend the due date; the document must be paper filed.
2. A continuing hardship exemption is granted because of undue burden and expense or impracticability. Due to the ease of electronic filing, the SEC expects few such exemptions.
3. Adjustments of filing date applies when the SEC staff adjusts the filing date of an electronically submitted document because receipt or acceptance was delayed due to equipment malfunction or other technical problems. Backup measures are in place to assure that EDGAR will be fully operational and the SEC hopes such situations will not arise.
Regional Office FIlings and Exempt Offerings--Non-EDGAR Filers
Presently, regional office filings, such as Regulation A public offerings up to $5,000,000 and Regulation D exempt offerings, may not be made in electronic format. Small business issuers using Form SB-1 or Form SB-2 who also may file at the SEC regional offices use paper format.
The SEC had the foresight to anticipate the tremendous growth in computer applications. Early in the 1980s, the SEC started to develop a system for the electronic filing of registration statements and periodic reports required under the statutes. Electronic filing was the brainchild of the SEC, and to publicize and popularize such an advanced system, it asked the public to name the system. There were many names proposed, but the winning selection seems a superb choice. EDGAR encompasses all attributes conceived in the development stage of the system--receipt, acceptance, and dissemination of information concerning publicly traded entities.
The SEC believes electronic filing will result in a number of benefits to filers, the Commission, investors, and other members of the public. EDGAR is a major contribution to fulfilling the Commission's objective of providing full and fair disclosure for securities offered and traded in U.S, interstate commerce.
DEVELOPMENT AND IMPLEMENTATION OF THE EDGAR SYSTEM
1983: EDGAR pilot program introduced. SEC calls for volunteers to participate in its electronic filing process.
1983 to 1992: EDGAR temporary rules adopted. Approximately 1,800 pilot program participants filed over 116,000 electronic filings. Pilot program closed.
1992 to 1993: Operational phase begins. Amended temporary EDGAR rules adopted for transitional EDGAR participants. (Transitional participants were those Pilot filers who elected to convert to the operational EDGAR system prior to their mandated phase in date.) pilot program participants become the first group required to file electronically.
1993 to 1996: Temporary EDGAR Rules rescinded. Adoption of Regulation S- T. Remaining pilot program participants phased in. Mandated electronic filing program completed.
EDGAR FILER CODES
1. Central Index Key (CIK), a number assigned by the SEC to uniquely distinguish an individual. This is the one access code that is available to the public. The SEC assigns a CIK to all filers, both EDGAR and non- EDGAR.
2. CIK Confirmation Code (CCC), an eight character code that is used in conjunction with the CIK to authenticate a filing. It will sometimes be necessary to reveal the CCC to filing agents or financial printers who act as submitting agents on behalf of filers. To prevent erroneous transmissions, agents must use their own CIK and password to establish authorization for a transmission.
3. Password (PW) is an eight character code used in combination with a CIK to identify the entity making the submission.
4. Password Modification Authorization Code (PMAC) used for changing a password.
1.Prepare documents using EDGARLink software format.
2. Make fee payment using one of the following:
a. Lockbox b. Wire transfer
3. Select one of three choices For electronic filing:
a. Diskette b. Magnetic Tape c. Modem (asynchronous or bisynchronous transmission)
4. SEC sends acceptance or error notice via one of the following methods:
a. CompuServe b. E Mail c. Regular Mail
5. If required, errors corrected and filing resubmitted.
William J. Coffey, Phd, CPA, is a professor of accounting at the Lubin School of Business, Pace University. He is a frequent contributor to professional journals including The CPA Journal.
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