XBRL data is shaping the future of the capital markets – just no one knew it.
Since 2009, the capital markets / investor relations industry has been waiting for the broad, universal and simultaneous adoption of XBRL, the “machine-readable” code that underlies SEC forms 10-Q and 10-K. That’s not going to happen – at least not as a Big Bang.
What is happening, in a more Darwinian manner, is that is XBRL has quietly worked its way into the daily dataflow of thousands of investors – in the quantitative trading platforms built by extremely smart people: engineer predictive-modeling-data smart, not Wall Street speculative-gut-reaction smart. Websites like QUANDL.com and DIYquants.com are two of the data hubs for quantitative trading developers.
The best allegory I’ve read is to compare investing with the weather. Legacy Wall Street is still largely based on experience: they can look up in the sky and make a trade decision – like a sheep herder who has worked the same hillside for years. A “Quant” (quantitative trader) is more like a meteorologist. They work computer-based statistical analysis strategies to execute trades when certain data-driven conditions are met.
Today, at many companies, IR and SEC reporting live separate, but equal lives.
XBRL is the delivery mechanism of your earnings announcement. It’s the earnings call for Quants.
Quants are not on your quarterly conference call, listening to your CEO’s earnings narrative. So, how are Quants receiving your earnings narrative? Directly from you via your XBRL filings. This is why we have our continual hissy-fit blog posts about XBRL quality. Forget about compliance. For investor relations, XBRL is about communications.
Quants need to have the same level of IR oversight as any buy-side analyst
With the explosion of Quants and the equally aggressive Fintech industry, investor relations teams now need to reach a growing investor base that will not ever respond to traditional, narrative-based investor relations. For Quants, XBRL is the narrative – and if the XBRL has errors that corrupts their models, the narrative is not communicated and they’ll bypass that stock.
We counsel clients that a better moniker for building relationships with Quants is financial communications rather than shareholder communications. There is no denying that, looking forward in our Big Data world, the vocabulary of financial communications is XBRL. IR needs to double-check that your company is speaking in that tongue correctly.
Forget about compliance. For investor relations, XBRL is about communications. Get involved. Ask your SEC reporting team for a recap of the most recent filing.