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When Thursday rolls around, will EDGAR still be EDGAR?

November 28, 2011

A little more than three years ago, the SEC announced that EDGAR was to going be put out to pasture.  The venerable system was to be replaced, gradually, by IDEA (“Interactive Data Electronic Applications”) — a moniker aspiring to be slick and catchy, but destined to be flat and forgettable.  You don’t hear much talk about “IDEA” anymore, even as the incorporation of interactive data into filings via XBRL marches forward.  Yes, EDGAR seems here to stay, at least for the foreseeable future.

Or at least until this Thursday.

You see, this Thursday, December 1, is the compliance deadline for new SEC rule 13(h), approved in late October (see the adopting release here).  The new rule mandates a brand new SEC form, 13H, to be submitted by certain “large traders” who must now identify themselves and describe their affairs in elaborate detail.

Like many new SEC rules, 13(h) has been the source of controversy as well as interest.  But little has been made of the fact that the arrival of Form 13H appears to establish a new precedent for the SEC’s EDGAR system – a precedent arguably at odds with one of the fundamental premises of the system. 

EDGAR, after all, stands for Electronic Data Gathering, Analysis, and Retrieval.  The “analysis” and especially the “retrieval” pieces here allude to the ability of electronic dissemination to revolutionize, and democratize, access to data.  This is loud and clear in one of the earliest official statements on EDGAR, Chairman Cox’s “Introducing EDGAR” speech, from 1985:

When investors, securities analysts and the public have immediate and equal access to corporate disclosure documents . . . [they] will be able to collect data to prepare a comparative analysis of investment alternatives in a matter of minutes.  Such sophisticated financial analysis will no longer be the exclusive province of the institutional or other professional investor.

So transparency and public accessibility have always been a central element of EDGAR.  Filing via the SEC EDGAR system has been virtually synonymous with public disclosure.  Sure, confidential treatment is possible in extraordinary circumstances, but you have to petition the SEC, and you have to have a pretty compelling reason.  Approved requests for confidential treatment have been, historically anyway, the exception that proves the rule.

All of which goes to show why Form 13H is such a departure.  For 13H is the first EDGAR filing in which confidentiality is the rule.  As the SEC explains, “These non-public submissions will not be disseminated by EDGAR.”  They won’t be publicly available, not through the SEC website, not through Knowledge Mosaic, not through Westlaw Business or anywhere else.   They’re even sheltered from Freedom of Information Act requests.

It’s not the confidentiality per se of 13H data that’s the issue.  After all, this is information that wasn’t even being solicited prior to the adoption of the new rule.  And certainly there is ample precedent for various types of securities filings to be confidential;  “safe harbor” registrations like the Rule 144A private placement memos are a prime example.

The difference is that 144As are not filed via EDGAR.  No non-public filing is — or at least none has been, until now.  That’s the key point here.  Form 13H may not be disseminated by EDGAR, but it is submitted through that system.  The new rule, then, could be seen to represent a new understanding of what EDGAR means.  And if it’s the first domino to fall, well, then Form PF will be the second.

All of which begs the question: Is EDGAR still EDGAR if analysis and retrieval are removed from the equation?  Does Thursday begin the new era of EDG?

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