Recent articles by the WSJ’s industry watchdog Scott Patterson highlighted academic research that showed that some (assumedly professional) investors are receiving SEC EDGAR files moments-to-minutes before retail investors via a dedicated paid subscription feed. This paid feed is in comparison to the files being openly available on the SEC.gov EDGAR site… free for anyone.
From the WSJ:
The studies were the latest indication that some superfast, sophisticated trading firms enjoy an advantage over other investors, echoing previous cases in which high-frequency traders received corporate news releases or key data on the U.S. economy milliseconds before competitors.
It wasn’t clear whether the change in timing was the result of action by the SEC, a contractor running a direct feed or simply stemmed from technology glitches in its distribution system.
In this case, unlike the high frequency traders’ conscious effort to game the system, this is more likely to be a result of “left-overs” from pre-2002.
Allow me to explain: up until May 2002, the SEC did not publish issuers’ SEC files when they received them – their website technology took up to 48 hours!
I know this first-hand via the shareholder communications business - as to populate the SEC files on investor relations websites, we bought a separate “real-time” feed from ye olde’ Edgar Online. Besides, being pert-near instantly available (to advance corporate transparency), the commercial feed was also property parsed for import. In fact, all IR website vendors still buy a feed from a 3rd party – not the SEC. I doubt the research looked at the EDGAR file publishing timing on an issuers own IR website.
Obviously, this data formatting is a necessity for Street portals like Bloomberg. It’s a tried and true data feed that the portals have used for years – long before the SEC itself went real-time. No conspiracy. Just the reality of the data business.
From the WSJ:
Still, the episode underscores how outmoded the system has become, say securities experts.
“It’s an ancient computer system that is processing more and more data than it was designed for,” said Scott Kimpel, a partner at law firm Hunton & Williams LLP.
The SEC is in the early stages of a multiyear modernization of the system. Ms. White said in congressional testimony earlier this year that the effort would simplify the financial-reporting process and ensure investors have access to better data.
This is where the evolution to XBRL will level the playing field compared to EDGAR. One single source – directly verified by both issuer and SEC. Will XBRL curtail the nefarious appetite of high frequency traders? – of course not, but at least the SEC will not be accused as an enabler.
This discussion above makes my XBRL rant even more “interesting.”
Have a great day.