Technology could steady financial markets

Improvements in the technology used for financial reporting could bring some stability to troubled markets, the head of a company that compiles data from corporate filings said on Thursday.

Philip Moyer, president and chief executive officer of EDGAR Online Inc., said the dearth of readily available information on mortgage-backed securities is contributing to the current lack of confidence on Wall Street.

The solution, Moyer said, is to require companies to provide all financial information online in eXtensible Business Reporting Language. XBRL uses a common format to display data, making comparisons easier; it also relies on internationally accepted standards to ensure interoperability with other countries' financial systems.

On May 14, the Securities and Exchange Commission mandated that publicly listed companies file their quarterly reports in XBRL. Companies valued at more than $5 billion (about 500 U.S. companies fall into this category) were required to comply with that requirement as of June 2008. The largest 1,800 companies must comply by the end of fiscal 2009, and all remaining companies must provide XBRL data by 2010.

Moyer said extending the requirement to mortgage-backed securities could help relieve some of the uncertainty in those markets. "For asset-backed securities, [SEC] is very interested in this topic," said Moyer. "I know they are very supportive of this concept, they recognize that if we're going to get the market restarted, we have to be able to see what's in these securities."

SEC did not immediately respond to a request for comment.

Moyer noted that in a Dec. 2 report, Government Accountability Office auditors found that the Treasury Department had not taken steps to ensure transparency and accountability for its Troubled Asset Relief Program.

"One of the things that came out loud and clear: today there is a lack of information about the marketplace," Moyer said. "We need to make sure there is good information to go with significant investment by the government…we need to make sure the money is being put to good use and the results of this are sustainable long-term."

One of the reasons mortgage-backed securities are so potentially toxic to investors, he said, is it's very difficult to determine exactly what assets are contained in a security or what their current status or value is, because such information generally is not updated in real time. Most asset-backed securities are priced initially by one of the three major ratings agencies based on the prospectus that is distributed at their issue. Because those documents often are more than 10,000 pages long, it is virtually impossible for them to accurately reflect the current value of the assets contained in the security.

"The issue gets priced…and everyone believes the analyst," Moyer said. "There's no way to question what's in the prospectus, no way to parse through them." He added that a company often would have to pay a research agency a large sum to gain access to such data and even then it would have no assurance the information was up-to-date.

XBRL is the best immediate solution, Moyer said. In the longer term, SEC is looking at ways to modernize its Electronic Data Gathering, Analysis and Retrieval system, where companies report their information. Officials characterized the system as obsolete and cumbersome in October. The agency is in the process of appointing an advisory committee that will discuss the best approach to a new disclosure system in 2009.