Next on the agenda is a recommendation that the Commission propose to require the use of Inline XBRL for the financial statement information and mutual fund risk/return summary information that is currently submitted as a separate interactive data file on our EDGAR system. 

The recommendation continues our efforts to modernize reporting and to improve the accessibility of disclosures to the public.  The recommendation also reflects the Commission’s effort to use developments in XBRL technology to lower regulatory burdens and costs.

The Commission adopted the XBRL requirements for financial statement and risk/return summary information in 2009.  Operating companies are required to submit financial statements in XBRL as exhibits and to post these exhibits on their websites.  Similarly, mutual funds are required to submit XBRL exhibits containing risk/return summary information from registration statements and prospectuses and to post these XBRL exhibits on their websites.  The 2009 XBRL requirements were intended to improve the usefulness of financial statement and risk/return summary information to investors, analysts, third-party information providers, filers, the Commission staff, and other data users.

For example, machine readable XBRL data allows investors and other market participants, including data service providers, to build comprehensive datasets and use analytical tools that include financial information from all covered filers.  Prior to the 2009 rules, this had to be done through hand collection and manual entry of information collected from paper filings.  As a result, investors had to rely on information purchased from data aggregators whose coverage of filer populations often omitted large numbers of registrants, particularly smaller ones.  Today, you can go to the Commission’s website and find available for bulk download, XBRL data extracted from operating company submissions for every filer, no matter how small.  And Commission staff regularly uses XBRL data for analysis in support of rulemakings, risk assessment, and enforcement activities. 

More broadly, structuring financial disclosures so that they are machine-readable facilitates easier and faster analysis that can improve investor decision-making.  Structuring financial information can also assist in automating regulatory filings and business information processing.  In particular, by tagging the numeric and narrative-based disclosure elements of financial statements and risk/return summaries in XBRL, those disclosure items are standardized and can be immediately processed by software for analysis.  This standardization allows for aggregation, comparison, and large-scale statistical analysis that is less costly and more timely for data users than if the information were reported in an unstructured format.

Although the benefits of XBRL data are widely recognized, some have raised issues regarding the quality and extent of use of XBRL data.  Others have voiced concerns about the costs of XBRL preparation, particularly for smaller filers. 

Some of the observed data quality issues may result from the submission of XBRL tagged information in a separate exhibit.  The rules we are proposing today would eliminate this requirement.  Furthermore, given that most investors obtain information sourced, directly or indirectly, from data aggregators, we are proposing to remove the requirement that XBRL data files be separately posted to individual company websites. 

Inline XBRL for the required interactive data submissions of operating companies and mutual fund filers is expected to facilitate improvements in the quality and usefulness of interactive data.  Inline XBRL is also expected, over time, to increase the efficiency and effectiveness of the financial reporting preparation process and to decrease costs by removing duplication of effort and facilitating review of XBRL data.  

To mitigate the possibility that any fixed cost of initial transition could disproportionately affect smaller filers, the proposal involves phased adoption of the Inline XBRL format based on filer category.  This phased approach would give smaller filers and filing agents time to develop the expertise necessary to switch to Inline XBRL, as well as the opportunity to benefit from the experience of larger filers.

Before I ask Scott Bauguess, Acting Chief Economist and Acting Director of the Division of Economic and Risk Analysis, to discuss the staff recommendation, I would like to thank the following individuals for their efforts on this rulemaking:

• Shelley Parratt, David Frederickson, Mark Green and Zachary Fallon from the Division of Corporation Finance
• David Grim, Michael Pawluk, and John Foley from the Division of Investment Management
• Scott Bauguess, Vanessa Countryman, Hari Phatak, Mike Willis, Anzhela Knyazeva, Walter Hamscher, Matthew Slavin, Hermine Wong, Matthew DeLesDernier, and former staff member Christopher Meeks from the Division of Economic and Risk Analysis

Many thanks also to Lori Price, Bryant Morris, Dorothy McCuaig, and Kevin Christy from the Office of the General Counsel.

In addition, I would like to thank Kevin Stout, Mark Jacoby, Giles Cohen, and Michal Dusza from the Office of the Chief Accountant.

Finally, I would like to thank Commissioner Stein and our counsels for their engagement and comments on the recommendation.

Now, I will turn the meeting over to Scott Bauguess to present the staff’s recommendations on the proposed use of Inline XBRL.